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

Quizplus · Accepted Answer

When a tax is imposed on a monopolist, the monopolist's profit-maximizing level of output occurs where marginal revenue equals marginal cost. This is because the tax increases the monopolist's marginal cost and shifts the marginal cost curve upward, making it intersect the marginal revenue curve at a lower level of output. The monopolist then adjusts its price to reflect the new level of output.

Which of the Following Statements Is True