Question

Suppose that a monopoly firm is required to pay a new annual license fee just for the privilege of doing business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will_______________.

Answer 1

will not change it prices

Step-by-step explanation:

Economic profit is the difference between the total income received and the total costs of inputs minus opportunity costs. Opportunity costs will include other implicit costs.

While accounting profit considers the general expenses in calculating profit and loss, economic profit takes into account opportunity costs together with the regular expenses.

If the licensee fee will not affect the economic profit, it implies that the firm profitability will remain the same. The accounting profit, which is what is usually reported in the income statement, will not be significantly affected. Therefore, the company will likely not change its prices.