Explain how a firm's cost curves and optimal rate of output are affected by (a) property taxes; (b) payroll taxes; and (c) taxes on profits.
What will be an ideal response?
(a) Property taxes are levied on land and buildings and must be paid regardless of whether the land or buildings are used. Therefore, they are a fixed cost for the firm, and they shift the firm's ATC curve upward. Since they don't affect the MC curve, the optimal rate of output does not change when a property tax is levied. (b) Payroll taxes are levied on the wages paid by the firm and add to the cost of hiring labor. Therefore, they shift the firm's MC curve upward and reduce its optimal rate or output. (c) Profit taxes are paid only when profits are made and therefore are neither a fixed cost nor a variable cost. Therefore, they do not affect the firm's cost curves or optimal rate of output.
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If demand is highly inelastic and supply shifts to the right, price:
A. hardly changes at all; quantity will rise significantly. B. will rise significantly as will quantity. C. will rise significantly; quantity hardly changes at all. D. will fall significantly; quantity hardly changes at all.
If Jen takes out a $2,000 loan for one year at 10 percent interest annually, the price she will pay for borrowing is:
A. $200. B. $2,000. C. $2,400. D. $2,200.