3.3 Only Native American Indian tribes can run casinos in California. These casinos are spread around the state so that each is a monopoly in its local community. Then California Governor Arnold Schwarzenegger negotiated with the state’s tribes, getting them to agree to transfer 10% of their profits to the state in exchange for concessions. How does a profit tax affect a monopoly’s output and price? How would a monopoly change its behavior if the profit tax were 25% rather than 10%?

(Hint: You may assume that the profit tax refers to the tribe’s economic profit.) (Hint: See Solved Problem 11.4.)