There is an income tax on the planet Bozone. Both annual income, x , and income tax, T ( x ) , are measured in the local currenc
y, the Bozat ( B η ). If the annual income x < 1000 , then the income tax is 10% of the income: T ( x ) = 0.10 x . If annual income x ≥ 1000 , then the income tax is 15% of the income: T ( x ) = 0.15 x . a. The equation for the income tax on income between B η 0 and B η 1000 is of the form T ( x ) = m x + b . Find the values of m and b .
1 answer:
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Answer:
a. $700,000
b. 6/7 or 85.7%
c. No they will not.
Explanation:
a. Jacobs will earn the normal salary that the other designers in the other companies are getting in addition to the incremental income he brings to the company as a result of his talents.
Incremental income = Revenue with Jacobs - Revenue without Jacobs
= 1,000,000 - 400,000
= $600,000
Jacobs earnings = Normal designer earnings + incremental income
= 100,000 + 600,000
= $700,000
b. Economic rent is the excess amount that the company is paying Jacobs over what it should normally cost to get a designer.
Normal cost of designer is $100,000. Company is therefore paying an economic rent of $600,000.
Proportion of Jacobs salary that is economic rent =
=
= 6/7 or 85.7%
c. The company hiring Jacobs will not be making an economic profit because for them to make an economic profit they would have to be making more than the $400,000 that the other firms make. They cannot make this amount because for them to do so they would have to reduce the amount they pay Jacobs. If they do so, Jacobs would leave for greener pastures and then they would be making the same $400,000 that the rest are making.