Which of the following will cause an unregulated monopolist to produce a more allocatively efficient level of output? aA tax based on the amount of profits bA tax that does not change as output increases cA subsidy that increases as output increases dA tax that increases as output increases
Question
Which of the following will cause an unregulated monopolist to produce a more allocatively efficient level of output? aA tax based on the amount of profits bA tax that does not change as output increases cA subsidy that increases as output increases dA tax that increases as output increases
Solution
The answer is c) A subsidy that increases as output increases.
Here's why:
a) A tax based on the amount of profits: This would decrease the monopolist's profits, but it wouldn't necessarily incentivize them to produce more or less, so it wouldn't lead to a more allocatively efficient level of output.
b) A tax that does not change as output increases: This is a fixed cost, and it wouldn't affect the monopolist's decision on how much to produce, so it wouldn't lead to a more allocatively efficient level of output.
c) A subsidy that increases as output increases: This would incentivize the monopolist to produce more because they would receive more money the more they produce. This could lead to a more allocatively efficient level of output because it would encourage the monopolist to produce more, which could bring the quantity produced closer to the socially optimal level.
d) A tax that increases as output increases: This would disincentivize the monopolist from producing more because they would have to pay more in taxes the more they produce. This could lead to a less allocatively efficient level of output because it could discourage the monopolist from producing the socially optimal quantity.
Similar Questions
When a monopolist reduces the amount of output that it sells, the price of its output: A. may increase or decrease, depending on the elasticity of demand B. stays the same C. decreases D. increases
What can you say about the allocatively efficient level of output compared to the new equilibrium market quantity after the tax (that is the same size as the external cost per unit of output) on producers described above is imposed?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aThey are the same.bThe equilibrium market quantity is greater.cThe allocatively efficient quantity is greater.dYou cannot tell from the information given.
Suppose that at the current output level the price received by a monopolist for its good is $10, marginal revenue is equal to $6, and marginal cost is $8. To maximise profit the monopolist should: A. decrease output B. increase output C. keep output constant D. we cannot say without more information
A monopolistically competitive firm produces less output than would be efficient.
If the market for products produced by firms in a monopolistically competitive industrybecomes ________, then there will be ________ firms and each firm will produce ________output and charge a ________ price.A) larger; fewer; more; higherB) larger; more; less; higherC) larger; fewer; more; lowerD) larger; more; more; lowerE) larger; more; more; higher
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.