A profit-maximizing monopolist faces the demand curve q = 100

Question

A profit-maximizing monopolist faces the demand curve q = 100 - 3p. It produces at a constant marginal cost of $20 per unit. A quantity tax of $10 per unit is imposed on the monopolist's product. The price of the monopolist's product

Quizplus · Accepted Answer

The monopolist will pass part of the tax onto consumers. The demand curve is q = 100 - 3p, which implies p = (100 - q)/3. The monopolist sets marginal revenue equal to marginal cost plus tax. The tax increases the cost by $10, but due to the monopolist's pricing power, the price will rise by less than the full tax amount. The price increase is $5.