Asked Nov 14, 2019

Suppose a per unit tax is imposed on monopolists

a.) How does this affect output price?

b.) how are profits affected?

c.)Whjat can you say about the burden of the tax-who bears it?


Expert Answer

Step 1

The monopoly is a market structure which is characterized by the presence of a single seller selling the product and there will be no close substitutes available for the product in the market. There will be very strong barriers to entry into the market which means that no new firm can enter into the market when there is presence of economic profit in the monopoly market.

Step 2

Per unit tax is the tax imposed on the units sold by the seller. The tax will be imposed only on the quantity sold. When the monopolist is charged a per unit tax, it will increase the cost of production of the unit for the monopolist. The monopolist would face an increased marginal cost of production and due to the increase in the marginal cost and the average cost of production the monopolist would reduce the output and would increase the price of the commodity in the market. Thus, due to the imposition of per unit tax on the monopolist, the output would fall and the price will rise.

Step 3


The profit is the excess revenue made by the monopolist after reducing the total cost from the total revenue. When the price increases and the quantity decreases, the profit of the monopolist...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Consumer demand theory

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: In neoclassical economic theory markets are relied on to allocate resources and distribute income – ...

A: Market Failure refers to a situation when, the market mechanism, which is based on the forces of mar...


Q: Can you give an example of the answer for the cpi. I am confused on what they are asking.

A: Suppose the 5 products are apple, guava, orange, melon and kiwi.


Q: (Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist sells 8 units, its av...

A: The formulae used in the following table are:Total Revenue = Price * QuantityMarginal Revenue = TRn-...


Q: Consider the market for paper towels where the supply curve is upward sloping and the demand curve i...

A: Consumer Surplus: It refers to the difference between the maximum price the buyer is willing to pay ...


Q: Please explain the relationships between income, consumption, savings, and GDP. Define each one. Exp...

A: Income is the financial gain earned during a particular period of time.Consumption spending is the t...


Q: 10.We discussed four problems (Problems of Timing, Political Consideration, Offsetting State and Loc...

A: The four problems of fiscal policies are listed as below. Problems of TimingPolitical ConsiderationO...


Q: 1. The table below presents hypothetical OLS results with used small SUV price information (in dolla...

A: (a) The predictive equation for the price of small used SUVs areP = 10,000 + 1000*(GN) +500*(GRN) + ...


Q: Refer to the table below. Real Output Demanded, Billions Price Level  Real Output Supplied, Billi...

A: (a) Equilibrium exists when the quantity demanded is equal to the quantity supplied. At equilibrium,...


Q: What is the relationship between interest rates and business investment?

A: To determine the relationship between interest rates and investments.