Suppose that a monopoly firm is required to pay a new annual licence fee to do business in its city and that the fee is somewhat less than the economic profit the firm is now earning.In response to the increase in fees,the firm will:
A) raise its price by less than the amount of the licence fee.
B) raise its price by the amount of the licence fee.
C) raise its price by somewhat more than amount of the licence fee.
D) not change its price.

Question

Quizplus · Accepted Answer

A monopoly firm will not change its price because the license fee is a fixed cost and does not affect the marginal cost or marginal revenue, which are the determinants of the profit-maximizing price and output.

Suppose That a Monopoly Firm Is Required to Pay a New