If a regulatory agency imposes a lump-sum tax on a monopolist (i.e.,a tax that is independent of the level of output)it will reduce the firm's profits because the tax increases
A)the LRAC but not the MC,leaving price and output unchanged.
B)both the LRAC and the MC,leaving price and output unchanged.
C)all costs as it shifts the demand curve to the left.
D)all costs as it shifts the demand curve to the right.
E)price whereas quantity demanded falls.

Question

Quizplus · Accepted Answer

A lump-sum tax increases the firm's total costs by the amount of the tax, but it does not affect the firm's marginal cost or demand curve. Therefore, the firm's profit-maximizing output and price will remain unchanged.

If a Regulatory Agency Imposes a Lump-Sum Tax on a Monopolist