If a specific tax is implemented

Question

Quizplus · Accepted Answer

Implementing a specific tax would result in all three effects listed in options A, B, and C. The firm's average cost curve would shift up due to the added cost of the tax, resulting in lower profits. The after-tax marginal cost curve would also shift, as the firm would need to factor in the tax when deciding how much to produce, resulting in lower quantity produced. Finally, there would be less profit per unit sold as a portion of the revenue would go towards paying the tax. Therefore, the correct answer is D, all of the above.

If a Specific Tax Is Implemented