A specific tax of $1 per unit of output will affect a firm's
A) average total cost, average variable cost, average fixed cost, and marginal cost.
B) average total cost, average variable cost, and average fixed cost.
C) average total cost, average variable cost, and marginal cost.
D) marginal cost only.

Question

Quizplus · Accepted Answer

A specific tax of $1 per unit of output would increase the cost of production per unit, leading to an increase in average total cost and average variable cost. Fixed costs would remain the same because they are not affected by output levels. Additionally, the tax would not directly affect marginal cost, but it may indirectly affect it if the tax causes the firm to decrease its production and subsequently increase its marginal cost (due to loss of economies of scale).

A Specific Tax of $1 Per Unit of Output Will