The government of Maxistan has imposed a lump sum tax on the monopoly that controls the game controller industry.

Which of the following is a likely outcome of the lump sum tax?
Choose 1 answer:
(A) Deadweight loss decreases.

B The monopolist's profits increase.
(C) The firm will produce more.
(D) Deadweight loss increases.
(E) The monopolist's profits decrease.

Question

The government of Maxistan has imposed a lump sum tax on the monopoly that controls the game controller industry.

Which of the following is a likely outcome of the lump sum tax?
Choose 1 answer:
(A) Deadweight loss decreases.

B The monopolist's profits increase.
(C) The firm will produce more.
(D) Deadweight loss increases.
(E) The monopolist's profits decrease.

Accepted Answer

∻Solution∻ ‖ a ⋮ Lump Sum Tax: A lump sum tax is a fixed amount of tax that a firm must pay regardless of its level of output. ‖ ‖ b ⋮ Impact on Profits: Since the tax is a fixed cost, it will reduce the monopolist's profits by the amount of the tax. ‖ ‖ c ⋮ Production Levels: A lump sum tax does not affect the marginal cost of production, so the monopolist's production level remains unchanged. ‖ ‖ d ⋮ Deadweight Loss: Deadweight loss is related to the quantity produced and the price set by the monopolist. Since the production level and price remain unchanged, the deadweight loss also remains unchanged. ‖ ∻Answer∻ ⚹ (E) The monopolist's profits decrease ⚹ ∻Key Concept∻ ⚹ Lump Sum Tax ⚹ ∻Explanation∻ ⚹ A lump sum tax reduces the monopolist's profits by the amount of the tax but does not affect the production level or deadweight loss. ⚹◊What impact would the lump sum tax imposed on the monopoly controlling the game controller industry have on consumer surplus and producer surplus in Microeconomics?⍭ Generate me a similar question◊

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