Raju and Co. is operating in a perfectly competitive market. The Government imposed a unit tax of Rs. 2 on the supply of output. The company produced and sold 1000 units. Total tax paid by the company and the Impact on LRAC curve of the firm will be
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 2000, LRAC shifts upwards
Step 1: Calculate Total Tax Paid
- Unit tax = Rs. 2 per unit
- Total units produced and sold = 1000
- Total tax paid = 2 × 1000 = Rs. 2000
Impact on LRAC Curve:
A unit tax increases the cost of production for the firm.
This increased cost will lead to an upward shift of the Long-Run Average Cost (LRAC) curve.
The LRAC curve will shift upwards, reflecting the higher average cost at each output level.