Suppose that a monopoly firm is required to pay a new annual license fee to do business in its city and that the fee is somewhat less than the economic profit the firm is now earning.In response to the increase in fees,the firm will:
A)raise its price by less than the amount of the license fee.
B)raise its price by the amount of the license fee.
C)raise its price by somewhat more than amount of the license fee.
D)not change its price.

Question

Quizplus · Accepted Answer

A monopoly firm maximizes profit by setting its output where marginal revenue equals marginal cost, not by directly setting its price based on costs. The imposition of a license fee affects its total costs but does not change the marginal cost of production or the demand for its product. Therefore, the firm is unlikely to change its price in response to the fee.

Suppose That a Monopoly Firm Is Required to Pay a New