What are some of the changes to variable costs that could af

What are some of the changes to variable costs that could affect the final price?

Solution

The most likely change to variable cost that affects final price is an increase in unit variable cost. If variable cost per unit increases, total variable cost and total cost increases for a specific output level. Ceteris paribus, the firm increases its final price if it wishes to earn the same amount of dollar profits.

However, if unit variable costs decrease, the firm may or may not lower its price depending on whether it wants to enjoy higher profits, or it wants to pass on the cost reduction to buyers in form of lower price.