Changes in the prices of key commodities have a significant impact on a company’s bottom line. For virtually all companies, the price of energy is a substantial portion of their costs. In addition, many industries — such as those that produce beef, chicken, high-fructose corn syrup, and ethanol — are highly dependent on the price of corn. In particular, corn has seen a significant increase in price.

a. Explain how the cost of energy can be both a fixed cost and a variable cost for a company.

b. Suppose energy is a fixed cost and energy prices rise.

What happens to the company’s average total cost curve?

What happens to its marginal cost curve? Illustrate your answer with a diagram.

c. Explain why the cost of corn is a variable cost but not a fixed cost for an ethanol producer.

d. When the cost of corn goes up, what happens to the average total cost curve of an ethanol producer? What happens to its marginal cost curve? Illustrate your answer with a diagram.