Consider a firm that uses only one fixed input and one variable input. a . Explain how this firm's TC, TVC, and TFC curves will be affected by a government tax on the fixed input. b. Explain how this firm's TC, TVC, and TFC curves will be affected by a government tax on the variable input
a . The TFC and TC curves shift up by the amount of the tax. The TVC curve does not change, because
the cost of the variable input does not change.
b. The TVC curve shifts up by the amount of the tax. The TC curve rotates upward: at 0 units of output
total costs still equal total fixed costs, but for output levels above 0, total costs increase by the amount
of the tax. The TFC curve does not change, because the cost of the fixed input does not change.
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A) fall; fall B) fall; rise C) rise; rise D) rise; fall
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