If the inverse demand function a monopoly faces is p(Q) and its cost function is C(Q), show the effect of a specific tax, t, on the monopoly's profit-maximizing output. The monopoly's profit-maximizing output A. will increase because the tax increases marginal revenue to OB. will not change because the tax increases costs to C(Q) + T. C. will decline because the tax increases marginal cost to AC(Q) AQ O D. will decline because the tax increases costs to C(Q) + T. O E. How does imposing t affect its profit? The tax will profit. dR(Q) will decrease because the tax increases marginal revenue to dQ increase dR(Q) dQ not change decrease + t + T. + T.
If the inverse demand function a monopoly faces is p(Q) and its cost function is C(Q), show the effect of a specific tax, t, on the monopoly's profit-maximizing output. The monopoly's profit-maximizing output A. will increase because the tax increases marginal revenue to OB. will not change because the tax increases costs to C(Q) + T. C. will decline because the tax increases marginal cost to AC(Q) AQ O D. will decline because the tax increases costs to C(Q) + T. O E. How does imposing t affect its profit? The tax will profit. dR(Q) will decrease because the tax increases marginal revenue to dQ increase dR(Q) dQ not change decrease + t + T. + T.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:If the inverse demand function a monopoly faces is p(Q) and its cost function is C(Q), show the effect of a specific tax, t, on the monopoly's profit-maximizing output.
The monopoly's profit-maximizing output
O A.
will increase because the tax increases marginal revenue to
O B. will not change because the tax increases costs to C(Q) + T.
C.
will decline because the tax increases marginal cost to
O D. will decline because the tax increases costs to C(Q) + T.
O E.
will decrease because the tax increases marginal revenue to
How does imposing t affect its profit?
The tax will
▼profit.
increase
not change
AC(Q)
AQ
decrease
dR(Q)
dQ
+ t
dR(Q)
dQ
+I.
+T.
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