Figure 9.4 illustrates the effect of imposing a specific tax of $8 per unit of a monopoly€™s output. Suppose that instead of charging a specific tax, the government charges a profit tax of 10%. How does this profit tax affect the equilibrium price and quantity, consumer surplus, producer surplus, and total surplus.

Figure 9.4

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(a) Competition (b) Monopoly MC, Supply curve MC E2 P2 E, P2 P, MR MR2 D2 D' D2 D' Q, Units per year Q, Units per year Q,= Q2 p, $ per unit A p, $ per unit ......