Answer to Question #90674 in Microeconomics for sheila xavier

Question

A company is doing well with a government subsidy, but long run the government captitalizes the subsidy. What does it mean to capitalize a subsidy and what is the outcome to the company?

Answer 1

Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates).

To capitalize the subsidy means, that the government pay the amount of subsidy directly to the producer as a compensation for producing more output at current market price.