Suppose a cell-phone service provider has monopoly rights for a geographical region and is earning monopoly profits.If the government then imposes a lump-sum tax (i.e.,a tax that is independent of the level output)of $X on this firm,the effect is
A)an increase in consumer surplus due to the tax revenue.
B)to increase the firm's marginal costs and reduce its profit by $X.
C)to increase the firm's average costs and reduce its profit by $X.
D)a reduction in output and an increase in price.
E)an increase in output and a decrease in price.

Question

Quizplus · Accepted Answer

A lump-sum tax does not affect marginal costs but increases average costs, reducing profit by the amount of the tax.

Suppose a Cell-Phone Service Provider Has Monopoly Rights for a Geographical