Solution to Problem Set 05 (ECO100)

Mc ac avc afc q 4 a an increase in interest rates æ

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$ MC AC AVC AFC Q 4. a) An increase in interest rates Æ TFC, TC, AFC, and ATC will increase b) An increase in wages Æ TVC, TC, AVC, ATC, and MC will increase c) A decrease in property taxes Æ TFC, TC, AFC, and ATC will decrease d) An increase in the price of coal, oil, and nuclear fuel Æ TVC, TC, AVC, ATC, and MC will increase e) A decrease in the purity of the water it takes in for use in its boilers Æ TVC, TC, AVC, ATC, and MC will increase f) Imposition of an excise tax on electricity sales collected by the government from the company Æ TVC, TC, AVC, ATC, and MC will increase g) A tax on plant size to cover the city’s water cleanup costs Æ TFC, TC, AFC, and ATC will increase h) Passage of an antipollution law Æ Most likely TFC, TC, AFC, and ATC will increase since the company will have to make some new investment to reduce pollution emission while generating energy; it could also result in higher TVC, TC, AVC, ATC, and MC if, for instance, the company had to pay a penalty based on the quantity of pollution emitted i) An increase in premium rates for hazard insurance Æ TFC, TC, AFC, and ATC will increase
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