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

2000 , LRAC does not shift 3000 , LRAC shifts upwards 2000, LRAC shifts leftward 2000, LRAC shifts downwards

2000, LRAC shifts leftward

Leftward shift in LRAC means upward shift which in turn means an increase in LRAC of the firm. Now, suppose the government puts in place a unit tax of RS. 10 Since the firm must pay an extra Rs 10 for each unit of the good produced, the firm’s long run average cost and long run marginal cost at any level of output increases by Rs. 10.