Question

You have collected the following data on output and total variable costs:

Q	TVC
1	533
2	1024
3	1491
4	1952
5	2425
6	2928
7	3479
8	4096
9	4797
10	5600

1. Suppose instead that the government considers your production process to be polluting, and imposes a $65 tax per unit produced. How does this tax increase compare to the property tax increase, in terms of the effect on your company’s cost curves?

Select one:

a. The per-unit tax will affect fixed costs, so it will shift up TCTC and ACAC, but not the TVCTVC, AVCAVC, or MCMC curves.

b. The per-unit tax will only affect and shift up the marginal and average cost curves; the others will remain where they are.

c. A per-unit tax will shift up all the curves (TCTC, TVCTVC, AVCAVC, ACAC, and MCMC).

d. Since the per-unit tax reduces profitability, it will shift all of the curves downward by $65×Q$65×Q (i.e., $65 times QQ).

Answer 1

When the Government imposes a tax of $ 65 per unit. Then a tax of $ 65 will be added with every additional unit. This means it will get added to the total cost hence all the cost curves will shift up.

C. a per unit tax will shift up all the curves.

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