A local government imposes a lump-sum tax on all businesses operating within its jurisdiction. A small bakery and a large manufacturing plant are both required to pay the same fixed tax amount. How should the bakery and the manufacturing plant adjust their production decisions in response to this tax, given that it does not affect their marginal costs?

A lump-sum tax is a fixed amount that businesses must pay regardless of their size or production levels. In this case, both the small bakery and the large manufacturing plant must pay the same tax, but this tax does not change their marginal costs, which are the costs of producing one more unit of their product. Since the tax is a fixed cost, it does not affect the decision of how many units to produce; instead, both businesses will focus on maximizing their profits based on their existing costs and market prices. For example, if the bakery normally sells 100 loaves of bread at a profit of $2 per loaf, it will continue to sell that amount because the lump-sum tax does not change the profit it earns on each loaf. Ultimately, both businesses will maintain their production levels as long as their revenue exceeds their variable costs, since the lump-sum tax is a separate fixed expense.