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1 November, 17:28

Assume a firm increases its revenue by $100 while increasing its cost of goods sold by $85. How much additional tax will the firm owe if its marginal tax rate is 21%?

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  1. 1 November, 18:05
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    Additional tax the firm will owe: $3.15

    Explanation:

    Marginal tax rate is calculated by following formula:

    Marginal tax rate = Change in taxes paid/Change in income

    Change in taxes paid = Marginal tax rate x Change in income

    The firm increases its revenue by $100 while increasing its cost of goods sold by $85.

    Change in income = $100 - $85 = $15

    Additional tax the firm will owe = $15 x 21% = $3.15
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