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

question 25

Multiple Choice

A profit-maximizing monopoly faces an inverse demand function described by the equation p(y) = 30 - y and its total costs are c(y) = 5y, where prices and costs are measured in dollars.In the past it was not taxed, but now it must pay a tax of 2 dollars per unit of output.After the tax, the monopoly will

• A)increase its price by 3 dollars.
• B)increase its price by 2 dollars.
• C)increase its price by 1 dollars.
• D)leave its price constant.
• E)None of the above.

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Definitions:

Linear Relationship

A type of relationship between two variables where the relationship can be graphically represented by a straight line, indicating a constant rate of change.

Causal Relationship

A connection between two variables where a change in one variable is responsible for a change in another variable.

F Test

A statistical method employed to ascertain if significant variance differences exist among two or more groups.

Coefficient Of Correlation

A numerical measure that quantifies the degree to which two variables are linearly related.