The after-tax cost of debt ________ the before-tax cost of debt for a firm that has a positive marginal tax rate.
1 answer:
You might be interested in
Answer:
option (c) $600
Explanation:
Given:
Tax = $4 per unit
Initial equilibrium quantity = 2,000 units
Final equilibrium quantity = 1,700 units
Decrease in consumer surplus = $3,000
Decrease in consumer surplus = $4,400
Now,
Deadweight Loss is calculated using the formula:
Deadweight loss
= × Tax × (Original equilibrium quantity - New equilibrium quantity)
on substituting the respective values, we get
Deadweight loss = × 4 × (2,000 - 1,700)
or
Deadweight loss = 2 × (3) = $600
Hence,
the correct answer is option (c) $600