Micro Unit 4, Question 9- Lump Sum vs. Per Unit

The video tutorial explains the differences between lump sum tax and per unit tax. A lump sum tax is a one-time fee that affects a firm's fixed costs, altering the average total cost but not the marginal cost. This results in unchanged price and quantity but reduced profit. In contrast, a per unit tax impacts variable costs, leading to changes in both average total cost and marginal cost. This causes an increase in price and a decrease in quantity, affecting the firm's profit margin.

What is the primary effect of a lump sum tax on a producer?

• It increases the quantity produced.

• It decreases the price of the product.

• It increases the marginal cost.

• It changes the fixed costs.

How does a per unit tax affect a firm's costs?

• It only affects fixed costs.

• It has no effect on costs.

• It decreases the average total cost.

• It increases both variable and marginal costs.

What happens to the price and quantity when a per unit tax is imposed?

• Price decreases and quantity increases.

• Both price and quantity increase.

• Both price and quantity remain unchanged.

• Price increases and quantity decreases.

Which type of tax affects the marginal cost?

• Lump sum tax

• Neither lump sum nor per unit taxes

• Per unit tax

• Both lump sum and per unit taxes

What is the effect of a lump sum tax on the average total cost (ATC)?

• ATC increases

• ATC remains unchanged

• ATC fluctuates

• ATC decreases