Q1) whether the following statement is true or not? some reasons plz~!
"a monopolist produced 1 million units last year. If a $10 per unit tax is imposed, the profits of the monopolist will decrease by $10 million"
Chances are the monopolist would raise the price of the product by $10 a unit and the profits would remain the same.
False: profits will decrease, but by an amount less than $10M. The monopolist will cut back on production; it will produce something less than 1 million units.
To determine whether the statement is true or not, we need to analyze the impact of a $10 per unit tax on the monopolist's profits. Let's break it down step by step:
1. Start with the given information: The monopolist produced 1 million units last year.
2. Calculate the total revenue: We need to multiply the number of units produced (1 million) by the price per unit to find the total revenue. However, the statement doesn't provide information about the price per unit, so we cannot compute the actual revenue.
3. Assess the impact of the tax: The statement states that a $10 per unit tax is imposed. This means that for each unit produced, the monopolist has to pay $10 in taxes.
4. Calculate the total tax payment: Since the monopolist produced 1 million units, we can multiply the number of units by the tax per unit ($10) to find the total tax payment. Thus, the total tax payment would be 1 million x $10 = $10 million.
5. Consider the effect on profits: We need more information to determine the exact impact on profits. To evaluate this, we need to know the cost per unit to produce.
If the cost per unit is less than $10, then the profits would indeed decrease by $10 million because the tax payment would exceed the cost per unit. For example, if the cost per unit is $8, the monopolist would be making a loss of $2 per unit after paying the $10 tax, resulting in a total loss of $2 million ($2 x 1 million units). This would decrease their profits by $10 million ($10 million tax payment - $2 million loss).
However, if the cost per unit is equal to or greater than $10, then the profits would not decrease by exactly $10 million. In this case, the tax payment would be balanced by the increased cost per unit, resulting in a decrease in profits by an amount equal to the difference between the cost per unit and the tax per unit.
Without additional information about the cost per unit, we cannot determine the exact impact on profits. Therefore, the truthfulness of the given statement cannot be conclusively determined.