Answer to Question #316863 in Microeconomics for Welcome

Question

Name and describe three tax methods used by government to regulate unfair monopoly practices

Answer 1

The government can regulate monopoly through taxation. It can levy a tax per unit of output (Specific Tax) or impose a lump sum tax irrespective to its output.

Digressive taxes provide the polar opposite of unit and ad valorem taxes in that they encourage enterprises to boost output. Under digressive taxation, the margin between price and marginal cost narrows in imperfectly competitive marketplaces. A digressive tax is one that is levied on the basis of price.

The imposition of a lump sum tax and a profit tax merely reduces the monopolist's surplus profits because these two taxes are added to the overall fixed cost.