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How does a lump-sum tax affect a firm's level of output?

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

Categories: AP Microeconomics, Micro Unit 2 Product Markets

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