Suppose a $1 Tax Is Levied on Each Unit of Output

question 44

Multiple Choice

Suppose a $1 tax is levied on each unit of output in a perfectly competitive industry, we know that:

• A)the number of firms in the industry will increase in the long run as long as the demand curve is downward sloping.
• B)the number of firms in the industry will decrease in the long run as long as the demand curve is downward sloping.
• C)firms will no longer produce at the bottom of the average cost curve in long run equilibrium.
• D)firms will no longer produce at the top of the average cost curve in long run equilibrium.

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Definitions:

Marginal Product

The additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.

Profit Maximize

The process by which a company determines the price and output level that returns the greatest profit, taking into account costs and demand.

Wage Rate

Wage Rate represents the standard amount of compensation a worker receives for performing a specific task or job, typically expressed per hour or per unit of work completed.

Marginal Expenditure

The additional cost incurred for producing one more unit of a good or service.