Question
Asked Nov 14, 2019
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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?

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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

a.
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

b.

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...

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Business

Economics

Consumer demand theory

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