Return to the Market for Cigarettes from the Previous Questions

question 18

Multiple Choice

Return to the market for cigarettes from the previous questions.Suppose the government implements the tax you found in the previous question.But suppose the government is making a mistake.The true demand curve is in fact ,and this is not a result of any behavioral bias.Compute the deadweight loss of the government's tax policy.

• A) DWL = 0.
• B) DWL = 500.
• C) DWL = 1,000
• D) DWL = 2,500.

---

Definitions:

Cost Behavior

Cost behavior analyzes how different costs change or remain stable in relation to the level of production or business activity.

Managerial Decision Making

The process by which managers and leaders of an organization make choices and strategies to achieve organizational goals.

Relevant Range

The range of activity over which changes in cost are of interest to management.

Cost Behavior

Cost behavior refers to how different types of production costs change when there is a change in the level of production activity.