Which of the following statements is true?
A)If a tax is imposed on a product sold by a monopolist, the monopolist will maximise 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

The monopolist will still try to maximise profits by producing where MR=MC, even if a tax is imposed.

Answer: B 
 This is false. A monopolist will charge the price that maximises its profit given the demand it faces. This may not necessarily be the highest possible price.

Answer: C 
 This is also false. A monopolist can choose to pass some or all of the tax onto consumers by increasing price, but this depends on the price elasticity of demand.

Answer: D 
 This is false. While the demand for a monopolist's product may be less elastic than in a competitive market, it is not necessarily perfectly inelastic.

Which of the Following Statements Is True