An increase in the price of labor has no effect on which of the following cost curves?

• A. Total Cost (TC)
• B. Average Fixed Cost (AFC)
• C. Average Variable Cost (AVC)
• D. Marginal Cost (MC)

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definitions of the cost curves involved. Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC). Average Fixed Cost (AFC) is Total Fixed Cost divided by quantity produced, Average Variable Cost (AVC) is Total Variable Cost divided by quantity, and Marginal Cost (MC) is the additional cost of producing one more unit of output.
2. Step 2: Recognize that labor is a variable input, so an increase in the price of labor affects variable costs but not fixed costs. Fixed costs remain constant regardless of output or input prices.
3. Step 3: Since Total Fixed Cost (TFC) does not change with labor price, Average Fixed Cost (AFC) = \( \frac{TFC}{Q} \) remains unchanged because neither TFC nor output quantity Q is affected directly by labor price changes.
4. Step 4: Total Variable Cost (TVC) increases with higher labor price, so Average Variable Cost (AVC) = \( \frac{TVC}{Q} \) and Marginal Cost (MC) = \( \frac{\Delta TC}{\Delta Q} \) will both increase as labor becomes more expensive.
5. Step 5: Conclude that the cost curve unaffected by an increase in the price of labor is the Average Fixed Cost (AFC) curve, because fixed costs do not depend on variable input prices.