A change in the price of a variable factor shifts the average total cost
curve and the marginal cost curve. The original average total cost and
marginal cost curves are shown by and A rise in the price of
a variable input—for example, the wage rate—raises the cost of producing
each level of output. As a result, the average total cost curve and the
marginal cost curve shift upward to and
Now consider an increase in the price of a unit of the fixed factor. The
firm’s total fixed costs will rise, but its variable costs will be unaffected.
Thus, in a diagram like Figure 7-3 , the ATC curve will shift up but the
MC curve will not move.
Changes in the Amount of the Fixed Factor
In the short run, the firm has a fixed amount of some factor of production.
Economists usually think of physical capital as the fixed factor in the short
run, especially the physical capital embodied in a plant or factory. What
happens to the firm’s production costs if it increases the size of its factory?
There are two effects from such a change. First, once the larger factory is
in place, the firm’s total fixed costs have increased. Second, the increase
ATC 0 MC 0.ATC 1 MC 1.