Question

When the government increases_______taxes this does not affect firm's marginal costs and thus, its profit-maximizing output rate does not change, but if_______taxes are raised, this will increase the firm's marginal costs and reduce its profit-maximizing rate of output.

Answer 1

When the government increases lump sum taxes this doesnot affect firms marginal cost and profit maximising output

but if advalorem/ proportionate taxes are raised this will increase firms marginal cost and thus reduce profit maximising output.

1st blank= lump sum tax

2nd blank= advalorem