Economics · Microeconomics
Given below are two statements: Statement I: A lump-sum tax imposed on a monopolist cannot be shifted to consumers because the lump-sum tax becomes part of fixed costs, leaving marginal cost unchanged, so the profit-maximising price and quantity remain unaltered. Statement II: An ad valorem (percentage) tax on a monopolist WILL be partly shifted to consumers because it raises marginal cost at every output level, causing the monopolist to reduce output and raise price. Choose the correct answer:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Statement I is false, Statement II is true
- 2Statement I is true, Statement II is false
- 3Both statements are false
- 4Both statements are true✓
Correct answer
Both statements are true
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