Metropolitan Museum completes round of layoffs The museum cut 74 jobs and 95 oth

Question

Metropolitan Museum completes round of layoffs The museum cut 74 jobs and 95 other workers retired. The museum also laid 127 other employees in its retail shops. The cut in labor costs is $10 million, the museum expects no change in the number of visitors. Source: The New York Times, June 22, 2009 Explain how the job cuts and shop closings will change the museum's short-ru average cost curves and marginal cost curve. A cut in labor but no change in output increases the marginal product of labor. What is the effect on the marginal cost curve? O A rightward movement along the marginal cost curve occurs O The marginal cost curve shifts upward O The marginal cost curve shifts downward 0 A leftward movement along the marginal cost curve occurs. 011 1o 144 nser

Explanation / Answer

1) Answer: Economist refers to the opportunity cost of producing a product or service, which includes both implicit as well as explicit cost.

2) a) The short-run AVC, MC, and ATC curves shift downward.

b) Answer: The marginal cost curve shifts downward

Explanation: A job cut in labor with no change in output reduces the marginal cost of producing the output and increases marginal product of labor. The AVC, MC, and ATC curves shift downward.

The shop closures reduces the total fixed cost and consequently shift the AFC and ATC curves downward

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