Refer to the Graph Shown

question 30

Multiple Choice

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

• A) give government tax revenues of $100.
• B) give government tax revenues of $400.
• C) reduce producer surplus by $100.
• D) reduce producer surplus by $400.

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Definitions:

Variable Cost

Financial outlays that change directly with changes in production or sales amounts, such as direct labor and raw materials.

Incremental Manufacturing Cost

The additional costs incurred when increasing production by one additional unit.

Production Increase

Refers to the rise in the quantity of goods or services that a company produces over a given period.

Period Costs

Expenses that are not directly tied to the production process and are charged to the period in which they are incurred.