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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

The government says that firm X must pay $1,000 in taxes simply because it is in the business of producing a good. What cost curves, if any, does this tax affect?

To determine

Explain if tax rate increases what happens to cost curves.

Explanation

If tax increases the fixed costs by $1000, then it affects the total cost and total cost and average fixed cost.

Total cost:

Total cost can be calculated by using the following formula:

Total cost=Total fixed cost+Total variable cost        (1)

If the total fixed cost is $1,000 and the total variable cost is $15, then the total cost can be calculated by using the equation (1) as follows:

Total cost=Total fixed cost+Total variable cost=1,000+15=1,015

Thus, the value of total cost is $1,015.

Marginal cost:

Marginal cost can be calculated by using the following formula:

Marginal cost=Total cost1Total&#

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