Suppose that the government charges a firm a franchise tax each year (instead of only once). Describe the effect of this tax on the marginal cost, average variable cost, short-run average cost, and long-run average cost curves. (Assume that the firm's before-tax average cost curve, , is U-shaped.)The annual franchise tax _____ not affectthe firm's marginal cost curve,_ not affect increases the firm's average variable cost curve,_does not affectincreasesdecreasesthe short-run average cost curve, and_____ not affect decreases the long-run average cost curve.

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24-03-2021
Business

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Suppose that the government charges a firm a franchise tax each year (instead of only once). Describe the effect of this tax on the marginal cost, average variable cost, short-run average cost, and long-run average cost curves. (Assume that the firm's before-tax average cost curve, , is U-shaped.)The annual franchise tax _____ not affectthe firm's marginal cost curve,_ not affect increases the firm's average variable cost curve,_does not affectincreasesdecreasesthe short-run average cost curve, and_____ not affect decreases the long-run average cost curve.

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Parrain Parrain · Answer 1 · 2021-03-25T02:15:54+01:00

Answer: does not affect; does not affect; increases; increases

Explanation:

''The annual franchise tax does not affect the firm's marginal cost curve, does not affect the firm's average variable cost curve, increases the short-run average cost curve, and increases the long-run average cost curve.''

Franchise taxes do not affect output so will not be apportioned to output. This means that neither the marginal cost nor the variable cost will change because the tax does not change with output.

The fixed costs will however increase because the tax is a fixed cost. As fixed cost is a part of total cost, the average cost curve will increase to show this change. The tax is paid each year instead of once so in the long run the firm would still be paying the tax so the long run average cost curve is affected as well.