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.

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Jamuel Jiether · Accepted Answer

Final Answer : D, Explanation :  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.

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