Question

A firm and an individual both have $100 in revenue. Assume that the firm and the person have 50% tax rates. If a both the firm and the individual buy a $50 telephone, how much revenue would the firm and the person have after taxes?

A .firm, $25; person, 0.

B. firm, $50, person, $25.

C. firm, $25; person, $25.

D. firm, $25; person, $50.

E. firm, $50; person, 0.

Answer 1

Answer is C - Firm $25 and Person $ 25.

Here, we have to find out the profit after tax which is the net profit available after paying all the expenses and taxes.

So, first we have to calculate profit before taxes which is :-

Total revenue - Total operating and non operating expenses.

Here it is; $100 - $50 = $50

So, profit before tax is $50

Now calculate the tax on the available profit which is ;-

50% of $50 = $ 25

Tax = $25

Now find out profit after tax which is :-

Profit before tax - Tax rate

$50 - $25 = $25.

Revenue/profit after tax = $25.