Question

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%?

Answer 1

Answer:

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

Answer 2

Answer:

$3.15

Explanation:

Marginal income is the difference between the marginal revenue and the marginal cost.

Marginal revenue = $100

Marginal cost = $85

Marginal taxable income = $100 - $85

=$15

If the marginal tax rate is 21%, additional tax owed

= 21% × $15

=$3.15

The marginal tax owed as a result of the increase in revenue and cost is $3.15.