A local government currently has a tax base of $4 million and a tax rate of 5 percent. If the tax rate is increased to 6 percent, the tax base will decrease to $3.5 million. If the goal is to maximize tax revenues the tax rate should be

Question

Quizplus · Accepted Answer

The tax revenue is maximized when the product of the tax base and the tax rate is maximized. In this case, the tax revenue is maximized when the tax rate is 6 percent and the tax base is $3.5 million.

A Local Government Currently Has a Tax Base of $4