The government prefers an ad valorem tax to a specific tax that reduces the monopoly output by the same amount because

Question

Quizplus · Accepted Answer

The ad valorem tax transfers a percentage of revenue from the monopoly to the government, so the government prefers this tax to the specific tax that reduces output by the same amount. Consumers may still be harmed by the ad valorem tax, but the government's goal is to maximize revenue. The monopoly's preference is not relevant in this context.

The Government Prefers an Ad Valorem Tax to a Specific