Asked by Jesse Gonzalez on Apr 26, 2024
Verified
Imposition of an output tax on all firms in a competitive industry will result in:
A) a downward shift in each firm's marginal cost curve.
B) a downward shift in each firm's average cost curve.
C) a leftward shift in the market supply curve.
D) the entry of new firms into the industry.
E) higher profits for the industry as price rises.
Output Tax
A tax imposed based on the quantity of goods or services produced.
Marginal Cost Curve
A graphical representation that shows how the cost of producing one additional unit varies as production increases.
Average Cost Curve
A graphical representation showing how the cost per unit of producing goods changes with changes in the volume of goods produced, highlighting economies and diseconomies of scale.
- Assess the effect that external variables, such as taxes, have on supply and the dynamics of the marketplace.
Verified Answer
KJ
Krishna JayaswalApr 30, 2024
Final Answer :
C
Explanation :
Imposing an output tax on all firms in a competitive industry will increase their costs of production, resulting in a leftward shift in the market supply curve as firms supply less output at any given price. Options A and B are incorrect because the marginal cost and average cost curves are not affected by the imposition of an output tax. Option D is also incorrect because output taxes would result in higher barriers to entry, discouraging new firms from entering the industry. Option E is incorrect because higher profits for the industry would not be expected in the face of higher costs for production.
Learning Objectives
- Assess the effect that external variables, such as taxes, have on supply and the dynamics of the marketplace.