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The city government is considering two tax proposals: $\cdot$ A lump-sum tax of \$300 on each producer of hamburgers. $\cdot$ A tax of \$1 per burger, paid by producers of hamburgers. a. Which of the following curves-average fixed cost, average variable cost, average total cost, and marginal cost-would shift as a result of the lump-sum tax? Why? Show this in a graph. Label the graph as precisely as possible. b. Which of these same four curves would shift as a result of the per-burger tax? Why? Show this in a new graph. Label the graph as precisely as possible.

a. The lump sum tax is similar to increase in fixed cost. Its imposition would shift average fixed cost upwards, proportionately. It will have no impact on average variable cost and marginal cost, since variable cost is not affected by lump sum tax. Average total cost curve would shift upwards as it is sum of average variable cost and average fixed cost. $\\$

b. Per-unit tax is a tax imposed on the producer for producing each unit. $\\$the average variable cost curve will shift and hence the marginal cost curve also shifts and Since it has no influence on fixed cost, the average fixed cost curve will not shift.

03:41

Yi Chun L.

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in discussing the tax system, We like to know what the different effects are on the types of taxes that are levied. So we're looking at two different tax proposals here, both of which are levied on hamburger producers. However, the first one is a $300 lump sum tax, whereas the second one is a $1 per burger tax. So the difference between these two is we're looking at a lump sum tax and we're looking at a per unit tax. We'd like to know how all of our curves here shit we're looking at are marginal. Costs are average, total cost, our average variable costs and our average fixed costs. We know that they look something like this. So let's start with our lump sum tax and try to figure out how this $300 lump sum is going to. Impact occurs and we can do is we can treat this lump sum as a fixed cost because they're going to get charged this tax one time, and they won't have to pay it again until you know the next year. Whatever. Next quarter, however, they're taxed. So we see this fixed cost increase by that $300. So we have a new one. I'm going to call it a F C one, and as a result of that, we're also going to see our average total cost increase because what we know of average total cost is that it's the sum of our fixed costs and our variable costs. So when our fixed costs increase, our average total cost is going to increase by a proportionate amount. Now, looking at this per unit tax because we're charging this $1 per burger we can expect are marginal cost curve to shift upward because now, producing one more burger is going to cost that additional dollar so that marginal cost curve shifts upward. As a result of that, we also see as this average total cost shift upward and our average variable cost is going to shift upward. So as a result of the one as a result of this per unit tax, you can see all of our curves are shifting. Except for that average fixed costs. It's because we're not adding any cost to our baseline cost. In this case, we're just adding to it per burger produced and what we know is that fixed cost is not impacted by the quantity produced. So because this per unit taxes based entirely on this quantity produced, we can expect our average fixed costs remain the same. So to sum it up, this lump sum tax increase, our fixed costs and our total cost, whereas the per unit cost increase all of our curves except for the fixed cost.

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