Suppose a firm is in the short run and can only vary the quantity of labor hired

Solution:

Increase the firm's average cost and average variable cost.

Explanation:

Short run is a period of time over which certain factors of production cannot be changed, and such factors are called fixed factors. The costs incurred on fixed factors are called fixed costs.

The factors whose quantity can be changed in the short run are variable factors, and the costs incurred on variable factors are called variable costs.

Average variable cost is the variable cost per unit of output. It is the total variable cost divided by the number of units of output produced. As the output increases, the AVC will fall upto normal capacity output due to the operation of increasing returns. But beyond the normal capacity output, the AVC will rise due to the operation of diminishing returns.

Average cost is the sum of average fixed cost and average variable cost. i.e AC= AFC+AVC. The average cost is also known as the unit cost since it is the cost per unit of output produced.

When AVC curve begins rising, AFC curve falls steeply ie fall in AFC more than the rise in AVC. So ATC curve continues to fall. But as output increases further, there is a sharp increase in AVC, which is more than the fall in AFC.

Average variable cost (AVC) is firm's variable costs of output.To produce more output in the short run, the firm must employ more labor and must increase its cost. As output (increase in the cost of labor) increases, average variable cost falls to a minimum and then increases, thereby average cost also increases. Labor services to firms, who pay wages, salaries and benefits in return to the firm.The cost of producing a firm’s output depends on the how much labor and capital the firm uses.