Assume that a 2% tax is levied on the monopolist\'s profits. Does this have any

Question

Assume that a 2% tax is levied on the monopolist's profits. Does this have any effect on its choices of output level and output price? Consider now a quantity tax of $1 per output unit sold. Compute the optimal output level and the corresponding output price. How does this tax affect the monopolist's choices of output and price, and its profits? We say that the monopolist passes on the tax to the consumer if it raises the price by more than the tax ($1 here). Is this the case with the quantity tax in (2)?

Explanation / Answer

1. No, the tax on monopoly profit willn't have any impact on the choice of ouput and quantities because EVEN after the two percent , the monopoly maximizes profit function (1-t)Profit , AND still the same price and quantity maximizes this new profit function. Thus profit tax is a neutral Tax.

For Part 2 and 3 , Provide the figures of Exercise 2.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.