Firm Short-Run Output Decisions Under Different Taxation Schemes: An Application of Multivariable Calculus

When firms are deciding in the short-run on how much output to produce in a given period they implicitly or explicitly equate marginal cost to marginal benefits.  In the short-run different types of taxation schemes can change the optimum production levels while other forms of taxation do not change the output decisions of firms.  In the long-run when all inputs are flexible, Lump Sum Taxes and Proportional Taxes on Profits  reduces the number of firms in the market, but Lump-sum taxes on profits and a proportional tax on profits do not affect the firms output decision in the short-run.  A Tax on Output or an Input Tax on a variable input does reduce the output that the representative firm decides to produce in the short-run as well as increasing the likelihood of a firm to exit this industry.  The mathematical proof for these statements are outlined using partial derivatives and multivariable calculus in conjunction with the microeconomic theory of profit maximizing firms.

Advertisements

One thought on “Firm Short-Run Output Decisions Under Different Taxation Schemes: An Application of Multivariable Calculus

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s