If a firm is currently in short-run equilibrium earning a profit,what impact will a lump-sum tax have on its production decision?
A) The firm will decrease output to earn a higher profit.
B) The firm will increase output but earn a lower profit.
C) The firm will not change output but earn a lower profit.
D) The firm will not change output and earn a higher profit.

Question

Quizplus · Accepted Answer

A lump-sum tax is a fixed amount of tax that a firm must pay regardless of its level of output. Therefore, it does not affect the marginal cost or marginal revenue of the firm. The firm will continue to produce the same output level but its profits will decrease due to the additional fixed cost of the tax.

If a Firm Is Currently in Short-Run Equilibrium Earning a Profit,what