What effect does a lump-sum profit tax have on a monopolist?
A)It causes the price to increase but has no effect on the output.
B)It causes the output to decrease but has no effect on the price.
C)It causes the price to increase and the output to decrease.
D)It causes the output to increase but has no effect on the price.
E)It has no effect on either the price or the output.

Question

Quizplus · Accepted Answer

A lump-sum profit tax is a fixed amount of tax that does not depend on the quantity produced or sold. Therefore, it does not affect the marginal cost or the marginal revenue of a monopolist, leading to no change in the equilibrium price or quantity.

What Effect Does a Lump-Sum Profit Tax Have on a Monopolist