Shifts in Cost Curves

An increase in the price of the variable input results in the AVC (average variable cost),
ATC (average total cost) and MC (marginal cost) moving up together. The curves
retain their shape and relative orientation.
An increase in the price of the fixed input results in only the ATC moving up. The curves
retain their shapes and MC continues to intersect the new ATC at its minimum.
An improvement in technology shifts one or more of the cost curves down depending on the
exact nature of the change. The MC continues to intersect ATC and AVC at their minimums
and the difference between ATC and AVC is still AFC (average fixed cost).

Average Variable Cost (AVC)

and Average Total Cost (ATC)
are u-shaped curves and the
vertical difference between them
is AFC (average fixed cost)
and this decreases as quantity
increases. Both these curves are
intersected at their minimum
points by Marginal Cost (MC),
which slopes upward.

If the price of the variable

input increases all three cost
curves move upwards as shown
alongside. They retain their shape
and characteristics as described
above.

MC intersects the new ATC and

AVC at their minimums and the
difference between ATC and AVC
is still AFC.
If the price of the fixed input
increases only the ATC moves
upwards as shown alongside. The
curves retain their shape and
characteristics as described
above.

MC intersects the new ATC and

the old AVC at their minimums
and the difference between ATC
and AVC is still AFC.

If technology improves one or

more of the cost curves move
downward as shown alongside.
All three curves retain their shape
and characteristics as described
above.

The exact nature of the shift

depends on whether technology
makes labor more productive,
capital more productive or some
combination of the two.