Lump Sum and Per Unit: Econ Concepts in 60 Seconds

The video tutorial explains the difference between lump sum and per unit subsidies, focusing on their effects on cost curves. A lump sum subsidy affects fixed costs, impacting average fixed and total costs but not marginal cost. In contrast, a per unit subsidy affects variable costs, influencing average variable, total, and marginal costs. The tutorial also discusses how these subsidies apply to monopolies and perfect competition, highlighting the importance of marginal cost in production decisions.

What is the primary difference between a lump sum subsidy and a per unit subsidy?

• A lump sum subsidy affects variable costs, while a per unit subsidy affects fixed costs.

• A lump sum subsidy is given for each unit produced, while a per unit subsidy is a one-time payment.

• A lump sum subsidy affects marginal cost, while a per unit subsidy does not.

• A lump sum subsidy is a one-time payment, while a per unit subsidy is given for each unit produced.

How does a lump sum subsidy impact a company's cost structure?

• It decreases the marginal cost.

• It affects only the average fixed cost and average total cost.

• It increases the variable cost.

• It affects the average variable cost and marginal cost.

Which cost is NOT affected by a lump sum subsidy?

• Average fixed cost

• Fixed cost

• Average total cost

• Marginal cost

What is the effect of a per unit subsidy on a firm's cost structure?

• It decreases the average fixed cost.

• It affects the average variable cost, average total cost, and marginal cost.

• It only affects the fixed costs.

• It has no impact on the marginal cost.

In the context of monopoly, how does a per unit subsidy influence production?

• It has no effect on production levels.

• It increases the marginal cost, reducing production.

• It shifts the marginal cost curve upwards, increasing price.

• It decreases the marginal cost, encouraging more production.