Which of the following statements is true?

a. If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost.

b. A monopolist will always charge the highest possible price.

c. If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers.

d. Because a monopolist faces no competition, the demand for its product is perfectly inelastic.

Question

Business

Tatiana Ritter

5 February, 11:54

Which of the following statements is true?

a. If a tax is imposed on a product sold by a monopolist, the monopolist will maximize its profits by producing where marginal revenue equals marginal cost.

b. A monopolist will always charge the highest possible price.

c. If a tax is imposed on a product sold by a monopolist, the monopolist can increase its price to pass along the entire tax to consumers.

d. Because a monopolist faces no competition, the demand for its product is perfectly inelastic.

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Answers (1)

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Theresa · Answer 1

Option C is correct

Explanation:

Since it is a specific sales tax, the effect would be shifted to the consumers. The optimal output would be determined by

MR = MC + T = MCT

MR = marginal revenue, MC = marginal cost, T = tax

That mc curve would shift to mct which is the new equilibrium