Suppose that a firm has to pay a 10% tax on revenue.The profit-maximizing level of output is ?

Question

Quizplus · Accepted Answer

The profit-maximizing level of output is determined by comparing the marginal revenue (MR) and marginal cost (MC) of production. With the introduction of a 10% tax on revenue, the firm's marginal cost of production increases by 10%. This means that the MC curve shifts upward, making the intersection point with the MR curve occur at a lower level of output. Therefore, the profit-maximizing level of output decreases due to the tax.

Suppose That a Firm Has to Pay a 10% Tax