Sia
Question
Macroeconomics
Posted 10 months ago
If the government of Hamsterville grants the monopoly that controls the hamster food industry a lump sum subsidy, which curve is affected?
Choose 1 answer:
(A) marginal cost (MC)
(B) marginal revenue (MR)
(C) average variable cost (AVC)
(D) demand (D)
(E) average total cost (ATC)
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Answer from Sia
Posted 10 months ago
Solution
a
Understanding Lump Sum Subsidy: A lump sum subsidy is a fixed amount of money provided by the government to a firm, which does not vary with the level of output produced
b
Impact on Cost Curves: Since the subsidy is a fixed amount, it does not affect the variable costs of production. It lowers the firm's overall costs but does not change the cost per additional unit of output. Therefore, it affects the average total cost (ATC) but not the marginal cost (MC) or the average variable cost (AVC)
Answer
(E) average total cost (ATC)
Key Concept
Lump Sum Subsidy Impact on Cost Curves
Explanation
A lump sum subsidy lowers the average total cost (ATC) of production for a firm because it is a fixed payment that reduces the firm's total costs without affecting the cost of producing each additional unit.
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