Final answer:
A decrease in units produced to 40,000 would lead to a proportional decrease in total variable costs while fixed costs remain unchanged. Decisions may also be affected by price levels in relation to AVC, which could lead the firm to shut down and only incur fixed costs, rather than incurring additional variable costs that exceed revenue when producing below the AVC threshold.
Step-by-step explanation:
If the number of units produced decreased to 40,000 and all unit variable costs stayed the same, the impact on total variable costs would be directly proportional to the change in production volume. Since variable costs vary with production, producing fewer units means the total variable costs will decrease.
However, the fixed costs would remain unchanged, as these do not depend on the volume of production. Fixed costs amount to $160 or $10,000, depending on the scenario, and these amounts will still need to be paid regardless of the number of units produced.
Moreover, if we consider the firm's decision-making process, if the price falls below the minimum average variable cost (AVC), as per Table 8.6 which is around $1.65 to $1.72, the firm must consider shutting down operations because it will not even cover its variable costs, leading to a scenario where it is less costly for the firm to not produce anything and only incur fixed costs. In the event of a shutdown, only the fixed costs are borne by the firm, and the total variable costs would drop to zero as they wouldn't be incurring any variable expenses, and the revenue would also be zero.