Micro Foundations · intermediate
What moves on the Monopoly & Cost Curves diagram
Lower fixed costs reduce average cost without affecting marginal costmarginal costThe cost of producing one more unit., leaving price and output unchanged while increasing economic profit per unit.
Average cost includes fixed costs spread over output; marginal costmarginal costThe cost of producing one more unit. does not.
Management restructures, closing redundant offices and cutting overheads.
The average cost curve falls while marginal costmarginal costThe cost of producing one more unit. holds steady.
Quantity and price are unchanged, but the gap between price and average cost widens: every dollar saved goes straight to profit.
Examiners ask this as: efficiency drive, overheads cut, fixed cost falls, average cost falls, profit rises.
Other scenarios on Monopoly & Cost Curves