5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devise the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 50%. • Consumption up to 2,000 coconuts is taxed at 15%. • Consumption higher than 1,000 coconuts is taxed at 20%. • Consumption higher than 2,000 coconuts is taxed at 60%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 300 coconuts, 1,200 coconuts, and 3,000 coconuts, respectively.
5. Understanding marginal and average tax rates Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devise the following tax plans: Plan A Plan B • Consumption up to 1,000 coconuts is taxed at 50%. • Consumption up to 2,000 coconuts is taxed at 15%. • Consumption higher than 1,000 coconuts is taxed at 20%. • Consumption higher than 2,000 coconuts is taxed at 60%. Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the consumption levels of 300 coconuts, 1,200 coconuts, and 3,000 coconuts, respectively.
Chapter3: Organizing And Financing A New Venture
Section: Chapter Questions
Problem 7EP
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Transcribed Image Text:5. Understanding marginal and average tax rates
Consider the economy of Cocoland, where citizens consume only coconuts. Assume that coconuts are priced at $1 each. The government has devised
the following tax plans:
Plan A
Plan B
• Consumption up to 1,000 coconuts is taxed at 50%.
• Consumption up to 2,000 coconuts is taxed at 15%.
• Consumption higher than 1,000 coconuts is taxed at 20%.
• Consumption higher than 2,000 coconuts is taxed at 60%.
Use the Plan A and Plan B tax schemes to complete the following table by deriving the marginal and average tax rates under each tax plan at the
consumption levels of 300 coconuts, 1,200 coconuts, and 3,000 coconuts, respectively.
Consumption Level
Plan A
Plan B
(Quantity of coconuts) Marginal Tax Rate
Average Tax Rate Marginal Tax Rate
Average Tax Rate
(Percent)
(Percent)
(Percent)
(Percent)
300
1,200
3,000
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