Suppose that the unit tax imposed by the government is Rs 50. Then, if the firm produces and sells 100 units of the good, the total tax that the firm must pay to the government is ...................
Suppose that the unit tax imposed by the government is Rs 50. Then, if the firm produces and sells 100 units of the good, the total tax that the firm must pay to the government is ...................
Solution
Option 1 -> Rs. 500 would be correct only if 10 units were sold (50 × 10 = 500).
Option 2 -> Rs. 5000 is obtained by multiplying unit tax by quantity (50 × 100 = 5000).
Option 3 -> Rs. 50 is just the unit tax rate, not the total tax paid.
Option 4 -> Rs. 100 is the quantity produced, not the tax amount.
Hence, Option 2: Rs. 5000 -> A unit tax is a fixed tax amount imposed per unit of output produced or sold. To calculate total tax, we multiply the unit tax by the number of units. Here, Total Tax = Unit Tax × Quantity = Rs 50 × 100 units = Rs 5000 -> correct
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