Question

In a perfect competition model, the change in which of the following costs/imposition of taxes does not affect the equilibrium position of the firm in the short run.
(A). Increase in fixed cost
(B). Imposition of lump-sum tax
(C). Imposition of profit tax
(D). Imposition of specific sales tax (Per unit of output)

Choose the correct answer from the options given below:

• A. (A), (B) and (C) only.
• B. (A), (B) and (D) only.
• C. (A), (B), (C) and (D).
• D. (B), (C) and (D) only.

Hint:

In perfect competition, only changes affecting marginal cost (e.g., per-unit taxes) alter short-run output; fixed costs/taxes don’t.

Answer 1

The Correct Option is A

Step 1: Equilibrium output in perfect competition is set where \( MC = MR \).
Step 2: Fixed cost, lump-sum tax and profit tax are all independent of output level, so they do not shift the MC curve.
Step 3: A per-unit sales tax adds directly to MC, shifting equilibrium output.
Correct option: \[ \boxed{\text{(A), (B), (C) only}} \]