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Assume that the lost output due to tax distortions is proportional to the square of the tax rate. If
the average cost of the distortion created by taxes is currently $1000, and the tax rate is increased from 40%
to 50%, the average cost of the distortion created by taxes will increase to
A. $640.
B. $383.33.
C. $450.00.
D. $1562.50.
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