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.

Why would a per unit subsidy be more effective than a lump sum subsidy in achieving desired production levels?

Explain how marginal cost is affected by a per unit subsidy compared to a lump sum subsidy.