(Figure: Laffer Curve) the Graph Shows a Hypothetical Laffer Curve

question 56

Multiple Choice

(Figure: Laffer Curve) The graph shows a hypothetical Laffer curve. If the tax rate is 80%:

• A) the government should reduce the rate to 50% to maximize tax revenue.
• B) the tax rate should be increased to 100% (all income is taken in taxes) to maximize tax collection.
• C) the tax rate is at its optimal level.
• D) the tax rate should be reduced to zero to maximize tax revenue.

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Definitions:

Average Total Cost

The average cost per unit of output expressed as the total production cost divided by the number of units produced.

Average Total Cost

The total cost per unit of output, calculated by dividing the total cost by the quantity of output produced.

Efficient Scale

The level of production at which a firm operates with the lowest average total costs, achieving economies of scale without incurring diseconomies of scale.

Short-Run Cost Curves

Graphical representations that show the relationship between a firm's costs and output levels in the short term.