increase in fixed cost

Impact of Increased Fixed Costs on Other Costs
Name
Institutional Affiliation
1. If a sudden increase in the fixed costs occurs, the impact on the following variables is as outlined below:
a) The firm’s Average Fixed Cost (AFC)
Response
The AFC is computed from the total fixed Costs (TFC) and thus increase in the TFC will lead to a rise in the AFC (Hviid & Olczak, 2016).
b) The firm’s Average Variable Cost (AVC)
Response
The fixed costs and the variable costs are distinct costs and independent of each other. Increase in the fixed expenses, therefore, does not affect the Average Variable Cost.
c) The firm’s Average total cost (ATC)
Response
The ATC is computed from the total of the fixed costs and the variable costs and thus if the fixed costs increases, the ATC will also rise.
d) The firm’s Marginal cost (MC):
Response
The marginal costs depend on the additional units of goods produced for every unit (Hviid & Olczak, 2016). It is therefore independent of the fixed costs, and thus the rise of the FC does not affect the MC.
2. changes are likely to be seen on the curves as follows:
a. An increase in the fixed costs will trigger a further rise in the AFC, and the curve will shift upwards.
b. The Average variable costs (AVC) will not be affected by the increase I the fixed assets and as such, its curve will remain unchanged.
c. The Average Total cost combines both the variable and the fixed costs meaning that the graph will be varied. The chart will shift upwards due to the increase in the costs.

d. The Marginal costs (MC) curve, which slopes upwards, is plotted based on costs incurred by additional unit production and are thus not affected by the incremental costs in fixed costs. The curve remains unchanged.
Reference
Hviid, M. & Olczak, M. (2016). Raising Rivals’ Fixed Costs. International Journal of the Economics of Business, Vol. 23 (1): pp.16-36