Many small boats are made of fiberglass and a resin derived from crude oil. Supp

Question

Many small boats are made of fiberglass and a resin derived from crude oil. Suppose that the price of oil rises. The following graph shows two possible marginal-cost (MC) and average-total-cost (ATC) curves for an individual boat-making firm.
Firm ATCA TC Costs mc Quanity In the followling tables, inchcate which cuves represcnt the marinal-cost turve and average-total-cost curve betore the price hihe and after the price hike Marqunal- Cost curve mamCE erfore Oil Price Hike O After Dil hic threru Acraqe Tota Cost ATCA ATO Before al Price titel |

Explanation / Answer

Answer - In the given diagram we see average total cost curves and marginal cost curve shifted upward. Many small boats are made of fiberglass and a resin derived from crude oil. Oil is an input for the boat. Input price raises thus cost of production increased.

ATCa curve shows average total cost curve after oil price rises.

ATCb curve shows average total cost curve before oil price rise

MCa curve shows marginal cost curve after oil price rises.

MCb curve shows marginal cost curve before oil price rise.

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