S. Klepper, Economics 73-100, Fall 2011
Local governments regulate the price of electricity. Suppose that last year the total variable costs of electricity producers increased by 10% at every level of output and the total fixed costs of electricity producers increased by 10%, but the government did not allow the price of electricity to rise.
Which of the following statements concerning the effects of these developments in the short run are correct? Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.
_____1. The average total cost of electricity production increased by more than 10% at every level of output.
_____2. The marginal cost of electricity production increased by 10% at every level of output.
_____3. The minimum of the average variable cost of production across all output levels increased by 10%.
_____4. Since the price of electricity was unchanged, all electricity producers continued to produce the same amount of electricity.
_____5. The market demand curve for electricity shifted to the right.