Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

232 PRICE AND OUTPUT UNDER PURE MONOPOLY [CHAP. 9
(b)
Since the imposition of a lump-sum tax is like a fixed cost, it will not affect the monopolist’s SMC curve.
Thus, the monopolist will produce the same level of output and charge the same price as before the imposition
of the tax, but now the monopolist breaks even after paying the tax. These things are reflected in
Table 9.14 and Fig. 9-22.
Table 9.14
Q STC ($) SAC ($) STC 0 ($) SAC 0 ($) SMC ($)
1 17 17.00 23 23.00 . .
2 18 9.00 24 12.00 1
3 21 7.00 27 9.00 3
4 30 7.50 36 9.00 9
5 48 9.60 54 10.80 18
Fig. 9-22
9.20 (a) If the government imposed a per-unit tax of $1 on the monopolist of Problem 9.9, how would the new
equilibrium point of the monopolist compare with that in Problem 9.9? (b) Compare the effect on
consumers of price control, a lump-sum tax, and a per-unit tax.
(a)
A per-unit tax is like a variable cost; it causes an upward shift in the monopolist’s SAC and SMC curves. This
will change the monopolist’s equilibrium position as indicated in Table 9.l5 and Fig. 9-23. Before the imposition
of the per-unit tax, the monopolist was producing three units of output, charging a price of $9, and
making a profit of $2 per unit and $6 in total. After the imposition of the per-unit tax, the same monopolist
will produce a little less than three units, charge a price a little higher than $9, and make a profit of about
$1 per unit and $3 in total.
Table 9.15
Q STC ($) SMC ($) SAC ($) STC 0 ($) SMC 0 ($) SAC 0 ($)
1 17 . . 17.00 18 . . 18.00
2 18 1 9.00 20 2 10.00
3 21 3 7.00 24 4 8.00
4 30 9 7.50 34 10 8.50
5 48 18 9.60 53 19 10.60