Does tax affect marginal cost?

Marginal cost: Does not change. The key to note about this problem is that the property tax is a fixed cost and the excise tax is a per-unit cost, which therefore affects variable and marginal costs.

Does lump-sum tax affect price?

A lump sum tax increases fixed costs but it does not affect variable costs.

How does a lump-sum tax affect profit?

Imposition of lump sum tax and profit tax simply reduces excess profits of the monopolist since these two taxes are an addition to the total fixed cost. If the government imposes a 20% tax on profit of a monopolist then the fixed cost of the monopoly firm will go up since this type of tax is like a fixed cost.

What is the effect of a lump-sum tax on a monopoly?

Monopolies may be regulated by means of imposition of lump-sum taxes. Since a lump-sum tax is like a fixed cost to a monopolist, its imposition will result in an upward shift of his total cost (TC) curve by a vertical distance equal to the amount of the tax.

How does lump-sum tax effect deadweight loss?

The imposition of lump-sum taxes therefore causes no deadweight loss. This allows revenue to be raised, and redistribution to be achieved, with no efficiency cost and, hence, permits decentralization of a first-best allocation.

Do subsidies reduce marginal cost?

Effects from Subsidies Increases the supply (curve shifts to the right) Decrease the price. Increase in quantity produced. Increase in marginal cost.

What does lump-sum tax do to deadweight loss?

The Deadweight Loss of Taxation Lump sum taxes limit the amount of deadweight loss associated with taxation. Consider the effect of an increase in taxes which causes an increase in government revenue: revenue increases slightly and household income net of taxes decreases by slightly more than the revenue increase.

How does a lump-sum tax effect a monopoly?

How does lump-sum tax affect supply and demand?

Lump-sum taxes in a perfectly competitive market cause the total cost to increase. The existing firms incur losses as the price level remains the same. This induces firms to leave the market. Consequently, the market supply decreases, and the price level increases.