Question

Exercises 1. A profit tax is levied on profits (instead of on sales quantity). If the profit tax is p(t) and before-tax profits equal (p(t) - C)y(t), after-tax profits equal (1 C)y(t). Compare the effects, on a mine -(t))(p(t) owner's incentive to extract, of a constant profit tax and a profit tax p(t) that increases over time.

Answer 1

Hello dear, I have answered the question using set of values. Please ask for any doubts if you have.

We will en will solve this problem a examples with set with sample values. We will of encome and an increase affier Encome year. YEAR- 1st Buisness. BCG FMC LNT Infrastructurel finance sank. segment Tax Rate 50 Tax Profit (Before Tax) 50000 50000 500 00 10ooo 25000 Profat (Abier Tax) 50000 40000 25000 Prolet (Before Tax) a Tax. Year-2nd. BCG FMC INT Finance Bank Infrastructure Segment 22. 55 Tax Rate 55000 55000 55000 Proft (Belgre Tax) 12100 30250 55.000 142900 24150 Profit (After Tax) We conclude here - Assumption! - Increase in sale for all segnent es by $5,000 Soo) Tax Rate will increase on profit at 2nd year bu say for Bank Segonent and 55%. for Infrastructine Here, you can see we have the same comings. So let's see the roupact of tax effect on the comings.

Now, Cometastast & we see the profit fluctuation is also dependent on the tax Increase So, if we decrease the tax, it will help us in the growth of buisnees. This proves the above equations of profit (p(t)-C) y(t).