What happens when a per unit tax is imposed on a monopoly?

What happens when a per unit tax is imposed on a monopoly?

Unlike a lump-sum tax, a per-unit tax in monopoly causes an upward shift in the monopolist’s average cost (AC) and marginal cost curves, by the amount of the tax, say, t. Consequently, the equilibrium output of the monopolist will fall and the price will rise.

What curve does a per unit tax shift?

A per unit tax increases firm’s marginal cost and average variable cost (thus, also the average total cost), but does not affect fixed costs. A per unit tax will likely cause a firm to reduce its output in the short-run, since MC shifts up and moves along the demand curve.

How does a per unit subsidy affect a monopoly?

When the subsidy is a fixed sum on each unit of output produced. (12.23) gives us that as a rises, q also rises which gives us that grant of a per-unit subsidy would increase the output and, hence, decrease the price of the monopolist’s product (because of the negative slope of the demand or AR curve).

What happens to the monopolist if the per unit tax is imposed quizlet?

the quantity at any particular price depends on the monopolist’s demand curve. When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will: not always be less than the tax. A) same as the competitive market supply curve.

How do a monopoly lump-sum profits tax and a monopoly sales tax differ in their effects on the monopolist?

In the case of a monopoly, a lump-sum or a profit tax is better than a sales tax. This is because a lump-sum tax, or a profit-tax with a marginal rate less than 100 per cent, will reduce the profit after taxes of a (profit-maximising) monopolist, but will not affect his optimum price-quantity combination.

What is a per unit tax example?

A per unit tax is a tax in which the tax base is specified as a physical quantity rather than a dollar value. If, for example, the federal government places a per unit tax of 10 cents on gasoline, then buyers and/or sellers are responsible for paying an extra 10 cents on each gallon sold, regardless of the price.

What does a per unit subsidy do?

A per-unit subsidy, on the other hand, is an amount of money that the government pays to either producers or consumers for each unit of goods that is bought and sold. Mathematically speaking, a subsidy functions like a negative tax.

What is the incidence of tax on non residents?

In case of resident taxpayer all his income would be taxable in India, irrespective of the fact that income is earned or has accrued to taxpayer outside India. However, in case of non-resident all income which accrues or arises outside India would not be taxable in India.

How do you calculate tax incidence on a graph?

To calculate tax incidence, we first have to find out whether the tax shifts the supply or the demand curve. Next, we can determine in which direction and by how much the curve shifts, which finally allows us to find the new equilibrium and measure the tax incidence.

What is a per-unit excise tax in monopoly?

Per-unit excise tax is imposed on the basis of per-unit of the product. Unlike a lump-sum tax, a per-unit tax in monopoly causes an upward shift in the monopolist’s average cost (AC) and marginal cost curves, by the amount of the tax, say, t. Consequently, the equilibrium output of the monopolist will fall and the price will rise.

How do taxes affect the fixed cost of a monopoly firm?

If the government imposes a 20% tax on profit of a monopolist then the fixed cost of the monopoly firm will go up since this type of tax is like a fixed cost. Same is true with respect to lump sum tax.

How do I analyze a monopoly in AP Economics?

The AP exam will often ask you to correctly graph a monopoly firm’s profits or loss and then evaluate what happens if a per-unit/lump-sum tax or subsidy is imposed/provided. You must know how to answer what happens to the firms, quantity, price, profits, consumer surplus, DWL, losses due to a per-unit or lump-sum.

What is the pre-profit tax average cost curve for monopolists?

Assume that AC is the pre-profit tax average cost curve. The monopolist enjoys supernormal profit to the extent of MNRP. After the imposition of profit tax (or lump sum tax), AC shifts to AC T without disturbing equilibrium output and price. The only thing that has happened is the reduction of profit, as measured by the shaded area.