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A profit-maximizing monopoly faces an inverse demand function described by the equation p(y) 60 y and its total costs are c(y) 10y, where prices and costs are measured in dollars.In the past it was not taxed, but now it must pay a tax of 4 dollars per unit of output.After the tax, the monopoly will
A) increase its price by 4 dollars.
B) leave its price constant.
C) increase its price by 2 dollars.
D) increase its price by 6 dollars.
E) None of the above.
Inverse Demand Function
Expresses the price of a good or service as a function of the quantity demanded, illustrating how price varies with changes in demand.
Unit Tax
A fixed amount of tax imposed on a product or service, regardless of its price.
Total Costs
The combined amount of all the costs associated with the production of goods or services, including both fixed and variable costs.
- Investigate the consequences of tax policies on decision-making regarding prices and production in monopolies.
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Learning Objectives
- Investigate the consequences of tax policies on decision-making regarding prices and production in monopolies.
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