A Profit-Maximizing Monopoly Faces an Inverse Demand Function Described by the Equation

question 14

Multiple Choice

A profit-maximizing monopoly faces an inverse demand function described by the equation p(y) = 90 - y and its total costs are c(y) = 8y, where prices and costs are measured in dollars. In the past it was not taxed, but now it must pay a tax of 8 dollars per unit of output. After the tax, the monopoly will

• A) increase its price by 4 dollars.
• B) leave its price constant.
• C) increase its price by 8 dollars.
• D) increase its price by 12 dollars.
• E) None of the above.