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Consider Exercise 1. (1) Assume that a 2% tax is levied on the monopolist's prots. Does this have any effect on its choices of output
Consider Exercise 1. (1) Assume that a 2% tax is levied on the monopolist's prots. Does this have any effect on its choices of output level and output price? (2) Consider now a quantity tax of $1 per output unit sold. Compute the optimal output level and the corresponding output price. How does this tax affect the mo nopolist's choices of output and price, and its prots? (Hint: Note that a quantity tam of of $1 per output anit sold is equivalent to raising the marginal cost by $1. Why?) (3) We say that the monopolist passes on the tax to the consumer if it raises the price by more than the tax ($1 here). Is this the case with the quantity tax in (2)
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