Based Only on the Information Provided for Each Scenario, Determine

question 30

Essay

Based only on the information provided for each scenario, determine whether Eddy or Scott will benefit more from using the timing strategy and why there will be a benefit to that person.
a. Eddy has a 40% tax rate. Scott has a 30% tax rate.
b. Eddy and Scott each have a 40% tax rate. Eddy has $10,000 of income that could be deferred; Scott has $20,000 of income that could be shifted.
c. Eddy and Scott each have a 40% tax rate and $20,000 of income that could be deferred. Eddy's after-tax rate of return is 8%. Scott's after-tax rate of return is 10%.
d. Eddy and Scott each have a 40% tax rate, $20,000 of income that could be deferred, and an after-tax rate of return of 10%. Eddy can defer income up to 3 years. Scott can defer income up to 2 years.

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Definitions:

Labor Supply

The total hours that workers are willing and able to work at a given wage rate, across an economy or market.

Marginal Revenue Product

The additional revenue a firm earns by employing one more unit of input, such as labor or capital.

Variable Input

An input in the production process that can be varied in the short term to adjust output, such as labor or raw materials.

Profit-maximizing

The process or strategy by which a firm determines the price and output level that returns the greatest profit.