|Posted on April 17, 2014 at 9:55 AM|
A lump-sum tax has NO EFFECT on a firm's level of output because a lump-sum tax does not change marginal costs. It increases the firm's fixed costs and therefore shifts the average total cost upward. This will decrease a firm's economic profit, but not change output. If you see lump-sum tax or subsidy, DON'T CHANGE OUTPUT!
AP Microeconomics Unit 2 Product Markets