In what scenario would a lump sum subsidy be more effective than a per unit subsidy for a firm seeking to reduce short-term production costs?

A lump sum subsidy is a one-time payment given to a firm, while a per unit subsidy is paid for each unit of product produced. A lump sum subsidy can be more effective when a firm needs help covering fixed costs, like rent or equipment, that do not change with production levels. For example, if a factory receives a lump sum subsidy of $100,000, it can use that money to reduce its overall expenses, allowing it to lower prices or invest in improvements. This type of subsidy encourages the firm to optimize its operations without being tied to the number of units produced, which can lead to more efficient long-term growth. In contrast, a per unit subsidy might not provide the same level of support for fixed costs and could lead to inefficiencies if the firm produces too much just to receive more subsidies.