A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost.
a) Suppose a tax of $1,000 per day is imposed on the firm. How will this affect its price?
b) How would the $1,000 per day tax affect its output per day?
c) How would the $1,000 per day tax affect its profit per day?
Show your work.