If the government desires to raise a certain amount of revenue by taxing a monopoly, an ad valorem tax will
A) generate the same loss of consumer surplus as a specific tax.
B) generate a greater loss of consumer surplus than a specific tax.
C) generate a smaller loss of consumer surplus than a specific tax.
D) generate no loss of consumer surplus.
Question 2
Suppose a competitive firm's total revenue is 1,000,000 where MR = MC, its explicit variable costs are 900,000, its fixed costs are 90,000 of which 60,000 are sunk in the short run. If its implicit opportunity costs are 50,000, the firm should
A) produce because its economic profit is positive.
B) produce because its economic profit is zero.
C) produce even though its economic profit is negative.
D) shut down.
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