A monopoly has the demand curve q = 10,000 - 100p.Its total cost function is c(q)= 1,000 + 10q.The government plans to tax the monopoly's profits at a rate of 50%.If it does so, the monopoly will
A)increase its price by 50%.
B)increase its price by more than 50%.
C)recover some but not all of the tax it pays by increasing its price.
D)not change its price or the quantity it sells.
E)None of the above.

Question

Quizplus · Accepted Answer

The monopoly maximizes profit where marginal revenue equals marginal cost. A profit tax does not affect marginal cost or marginal revenue, so the monopoly's price and quantity remain unchanged.

A Monopoly Has the Demand Curve Q = 10,000 -