A lump-sum profit tax imposed on a monopolist will cause the monopolist to increase the price and reduce output in order to maximize its profits.

Name: A lump-sum profit tax imposed on a monopolist will cause the monopolist to increase the price and reduce output in order to maximize its profits.
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Question

Quizplus · Accepted Answer

A lump-sum profit tax does not affect the marginal cost or marginal revenue, so it does not change the monopolist's profit-maximizing output or price. It only reduces the monopolist's overall profit.

A Lump-Sum Profit Tax Imposed on a Monopolist Will Cause