Question

In: Economics

The city government is considering two tax proposals:

8. Problems and Applications Q8 


The city government is considering two tax proposals: 

• 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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