The city government is considering two tax proposals:

8. Problems and Applications Q8

• A lump-sum tax of $300 on each producer of hamburgers.

• A tax of $1 per burger, paid by producers of hamburgers.

Which of the following statements is true as a result of the lump-sum tax?

Check all that apply.

Marginal cost will increase.
Average variable cost will remain unchanged.
Average fixed cost will increase.
Average total cost will increase.

Which of the following statements is true as a result of the per-burger tax?

Check all that apply.

Average fixed cost will decrease.
Average total cost will remain unchanged.
Average variable cost will increase.
Marginal cost will increase.

Solutions

Expert Solution

(1) Following are true for lump-sum tax (equivalent to an increase in fixed cost):

- Average variable cost will remain unchanged

- Average fixed cost will increase

- Average total cost will increase

(2) Following are true for per-burger tax (equivalent to an increase in variable cost):

- Average variable cost will increase

- Marginal cost will increase

Rahul Sunny answered 2 years ago

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