Short Answer Questions: State whether or not you agree with the following bold statements and provide an explanation of why. Explanations may be graphical. State any assumptions that you make.

4. You are employed by the Chicago Transit Authority (CTA). Currently the CTA is experiencing a budget shortfall and is contemplating changing subway fares to increase its revenue. It is estimated that the price elasticity of demand for the subway at current fares is -1.7. To increase its revenue the MTA should lower the subway fare.

5. A firm suffering losses in the short-run will continue to operate as long as its revenue is bigger than its sunk costs.

6. Suppose the government wishes to combat the undesirable allocational effects of a monopoly (the deadweight loss). Placing a tax on the monopoly for each unit it sells reduces the monopoly's profit and the deadweight loss.