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    Hey, Thanks in advance =)

    i was wondering; if there is a fall in the interest rates (price of capital) and assuming that this effects only producers; why in the immediate short-run does the AC curve shift downwards however the MC curve stays the same?
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    Hi there,

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    I'm not too sure of the exact context of the question but I would imagine that this has to do with why the costs are falling.

    Lower interest rates will result in a reduction in the cost of loan repayments. These are fixed costs that do not vary with output in the short run and so would lower the average cost of production. They would not, however, lower the cost of producing the next unit (the marginal cost) as they would be incurred regardless of whether an additional unit is produced or not.

    Was that what you meant?
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    Yep, thanks
 
 
 
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