Suppose the government decides to levy a sales tax on a price-taking firm that is equal to

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Suppose the government decides to levy a sales tax on a price-taking firm that is equal to a percent of the revenue collected by the firm. Using firm cost curves, show

(a) the maximum tax the firm would be willing to pay without shutting down production in the short run, and

(b) the impact of the tax, if any, on the level of the firm’s output in the short run, assuming that it doesn’t shut down.

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