Answer to Question #90674 in Microeconomics for sheila xavier

Question #90674
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?
1
Expert's answer
2019-06-10T09:30:30-0400

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.


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