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How does a per-unit tax affect a firm's level of output?

Posted on April 17, 2014 at 9:45 AM

A per-unit tax discourages production by raising marginal costs (MC shifts upward). This will decrease the firm's level of output and reduce economic profits.

 

The average total cost and average variable cost curves also shift up, but it's the marginal cost curve that changes the profit-maximizing level of output as the MR=MC point has moved to the left.

  

AP Microeconomics Unit 2 Product Markets

Categories: AP Microeconomics, Micro Unit 2 Product Markets

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