Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Firms under Perfect Competition

Question:

What will be the impact of imposition of unit tax on the firm’s long run supply curve?

Options:

the firm’s long run supply curve will shift to the left and the firm now supplies fewer units of output at any given price

the firm’s long run supply curve will shift to the right and the firm now supplies fewer units of output at any given price

the firm’s long run supply curve will shift to the left and the firm now supplies same under of units of output at any given price

the firm’s long run supply curve will shift to the right and the firm now supplies same under of units of output at any given price

Correct Answer:

the firm’s long run supply curve will shift to the left and the firm now supplies fewer units of output at any given price

Explanation:

The correct answer is option 1: the firm’s long run supply curve will shift to the left and the firm now supplies same under of units of output at any given price

  • A unit tax is a tax imposed on each unit of output produced, increasing the firm's cost of production per unit.
  • In the long run, firms in perfect competition earn only normal profit (i.e., total revenue just covers total costs, including opportunity costs).
  • When a unit tax is imposed, production costs increase, making some firms unprofitable at the previous equilibrium price.
  • The long-run supply curve shifts to the left because, at any given price, the firm now supplies fewer units of output.