A competitive firm’s minimum LRAC is Rs 20. The government imposes a unit tax of Rs 3. The firm then produces and sells 50 units. Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Total tax the firm pays | (I) | Rs 150 |
| (B) | Rise in the firm’s LRMC at each output | (II) | Rs 20 |
| (C) | The firm’s new minimum LRAC | (III) | Rs 3 |
| (D) | The firm’s long run shut down price before the tax | (IV) | Rs 23 |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) - (I), (B) - (III), (C) - (IV), (D) - (II)
A unit tax of Rs t is paid on every unit sold. It raises the firm’s long run average cost and marginal cost by Rs t at every output.
| List-I | List-II | Reason |
|---|---|---|
| (A) Total tax the firm pays | (I) Rs 150 | Tax per unit × units sold = 3 × 50 = Rs 150. |
| (B) Rise in the firm’s LRMC at each output | (III) Rs 3 | LRMC rises by the full tax per unit. |
| (C) The firm’s new minimum LRAC | (IV) Rs 23 | LRAC also rises by Rs 3 at every output, so its minimum goes from 20 to 23. |
| (D) The firm’s long run shut down price before the tax | (II) Rs 20 | The long run shut down point is the minimum of LRAC, which was Rs 20 before the tax. |
NCERT (2026-27): “Impact of a unit tax on supply A unit tax is a tax that the government imposes per unit sale of output. For example, suppose that the unit tax imposed by the government is Rs 2. Then, if the firm produces and sells 10 units of the good, the total tax that the firm must pay to the government is 10 × Rs 2 = Rs 20. … Now, suppose the government puts in place a unit tax of Rs t. Since the firm must pay an extra Rs t 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 t.” “4.4.3 The Shut Down Point … In the long run, however, the shut down point is the minimum of LRAC curve.” |