The Local Operations Manager for the IRS Must Decide Whether

question 65

Short Answer

The local operations manager for the IRS must decide whether to hire 1, 2, or 3 temporary workers. He estimates that net revenues (in thousands) will vary with how well taxpayers comply with the new tax code.
$$\begin{array} { c c c c } \hline \text { \# of Workers } & \begin{array} { c } \text { Low } \\\text { Compliance }\end{array} & \begin{array} { c } \text { Medium } \\\text { Compliance }\end{array} & \begin{array} { c } \text { High } \\\text { Compliance }\end{array} \\\hline 1 & 50 & 50 & 50 \\2 & 100 & 60 & 20 \\3 & 150 & 70 & - 10 \\\hline\end{array}$$
-If he thinks the chances of low, medium, and high compliance are 20%, 30%, and 50%, respectively, what are the expected net revenues for the number of workers he will decide to hire?

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Definitions:

Per-Unit Tariff

A specific tax levied on each unit of a good imported into a country, as opposed to a percentage of the value.

Imported Good

A product or service brought into one country from another country in a legitimate fashion, typically for use in trade.

Domestic Consumers

Domestic consumers refer to individuals and households within a country who purchase goods and services for personal use, contributing to the internal demand of the country's economy.

Net Welfare Loss

The loss in social welfare, usually due to inefficiencies in the market system or government intervention policies that lead to misallocation of resources.