Question

If the office rent for an accounting firm decreases, which of the following cost curves will be affected?

i. Average Fixed Cost (AFC)

ii. Average Variable Cost (AVC)

iii. Average Total Cost (ATC)

iv. Marginal Cost (MC)

A. only i

B.i and iii

C. i and iv

D.iii and iv

Answer 1

Ans. = (Option B) i and iii

Due to Decrease in Office Rent, As Rent is a Fixed Cost.

First of all, The Total Fixed Cost Would Decrease and due to that the Average Fixed Cost (AFC) will also Decrease as AFC is calculated on the Basis of TFC.

AFC = TFC / Output

If AFC Decreases then ATC would also Decrease as ATC includes both AFC and AVC.

ATC = AFC + AVC

Hence, Both AFC and ATC would Decrease due to Decrease in the Office Rent.

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