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If the federal government enacts a tax on a monopoly, how would you expect the additional tax to affect the following:

1. Output produced by the monopoly
2. Prices charged by the monopoly
3. Profits of the monopoly

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Did you know?

Did you know that if the federal government imposes a tax on a monopoly, it could have significant impacts on various aspects of the monopoly's operation? First, the additional tax might lead to a decrease in the output produced by the monopoly. This is because the tax increases the cost of production and reduces the incentives for the monopoly to produce as much. Second, the prices charged by the monopoly may also increase as a result of the tax. In order to cover the costs of the tax and maintain profitability, the monopoly could pass on some or all of the tax burden to consumers by raising prices. Lastly, the profits of the monopoly might be negatively affected by the tax. The increase in production costs and potential decrease in output, coupled with possible price increases, could reduce the monopoly's overall profitability.