6. Cost-curve shifters The following graph shows the average total cost (ATC) cu

Question

6. Cost-curve shifters The following graph shows the average total cost (ATC) curve, average variable cost (AVC) curve, and average fixed cost (AFC) curve for Stan's Pizza Parlor when the retail price Stan pay large pizza. s for pizza dough, including sales tax, is $5 per PRICE AND COST ?Dollars per pizza ATC AFC AVC OUTPUT IPizzas per dayl Now, suppose the sales tax on pizza dough is removed, so the price of pizza dough decreases to $4 per large pizza. Fill in the following table with information on how each curve is affected, if at all. Cost ATC AVC AFC Effect on Cost and Curve

Explanation / Answer

Answer 5 :

A sales tax per unit increases the total cost (and AVC) & total variable cost (and AVC), but doesn't impact Fixed cost (or AFC). So, when the tax is lowered,

(a) ATC decreases, so the curve shifts down.

(b) AVC decreases, so the curve shifts down.

(c) AFC is unaffected & the curve doesn't shift.

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