Suppose a monopoly is producing its profit-maximising output level.Now suppose the government imposes a lump-sum tax on the monopoly, independent of its output.As a result, the monopoly's profit will fall.

Question

Quizplus · Accepted Answer

A lump-sum tax is a fixed amount of tax that does not depend on the monopoly's output level. This tax will directly reduce the monopoly's profit regardless of its production decision. Therefore, the monopoly's profit-maximising output level will be lower than before, leading to a decrease in profit.

Suppose a Monopoly Is Producing Its Profit-Maximising Output Level