Discussion
The imposition of a lumpsum tax will result in .............. of both the Average Fixed Cost (AFC) and the Average Total Cost (ATC) curves.
Answer: A
A lump-sum tax causes an upward shift of the AFC and ATC curves.
A lump-sum tax is a fixed amount that does not vary with output, so it adds to fixed cost. At every level of output, average fixed cost rises by the tax divided by output, and average total cost rises by the same amount, so both curves shift up.
Average variable cost and marginal cost are not affected. A downward shift would need a subsidy, and leftward or rightward shifts are not how cost curves respond to a change in cost at every output.
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