If new, more advanced equipment reduces the amount of labor needed to produce an increased level of output, then: a

Accounting Dec 08, 2020

If new, more advanced equipment reduces the amount of labor needed to produce an increased level of output, then:

a. The AVC curve will shift upward

b. The MC curve will shift upward

c. The ATC curve will shift downward

d. The AFC curve will shift upward but not by much as the downward shift in the ATC

Expert Solution

c. The ATC curve will shift downward.

The new and more advanced machine reduces labor cost, which is a variable cost, and also the total cost of production. This implies that for any level of output, AVC and ATC decrease. Therefore, the AVC and ATC curves shift downward so that (c) is the correct answer.

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