Answer to Question #159289 in Economics for Imoleayo

Question

Explain the incidence of a lump sum tax imposed on a monopolist profits by the government

Answer 1

Imposition of lump sum tax and profit tax simply reduces excess profits of the monopolist since these two taxes are an addition to the total fixed cost. If the government imposes a 20% tax on profit of a monopolist then the fixed cost of the monopoly firm will go up since this type of tax is like a fixed cost.