Average: /2 Attempts 4 . Problems and Applications Q8 The city government is con

Question

Average: /2 Attempts 4 . 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. Average variable cost will increase. Average fixed cost will decrease Average total cost will increase Marginal cost will remain unchanged. Which of the following statements is true as a result of the per-burger tax? Check all that apply. Average fixed cost will increase. Average variable cost will increase. Average total cost will increase Marginal cost will remain unchanged.

Explanation / Answer

1st question- The options stated below are correct:-

Avereage fixed cost will increase- It will because if the tax is paid in lump-sump amount, it will be added in the fixed cost of the firm as it has to pay the same amount at all level of productions. Average fixed cost will increase as there will be an addition of $300 in the fixed cost of the firm.

Average total cost will increase- The increase in average total cost of the firm will be due to the addition of $300 in fixed cost of the firm which is the component of total cost of the firm. The average total cost will increase due to increase in total cost of the firm.

Marginal cost will remain unchanged- It is because after the policy of lump-sump tax policy the addtion of $300 will be in the fixed cost of the firm as it has to pay the same level of tax at all level of outputs. There will be no change in the marginal cost of the firm after policy of lump-sump tax.

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Question 2nd

The options stated below are correct:-

Average variable cost will increase- It is because the per unit $1 tax is an variable cost and will be added in per unit cost of the production. Due the addition of $1 in each unit of production, the average variable cost will increase.

Average total cost will increase- By the addition of $1 tax on each unit of production, the total variable cost of production will increase. Variable cost is an component of total cost of production. So the by the increase in variable cost, the total cost of production will also increase. And hence the average total cost will increase.

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