Since we are on the subject of taxes, let us tackle the next question, which is rather more difficult. 10. A tax on corporation profit is a variable cost. (Answer: F) The student could easily fall into a trap of his own construstion here. He might reason: the corporation tax varies with the corporation's profit, and the profit with output, so the corporation tax varies with output. Lesson 2: A Tax on Corporation Profits Is Not a Variable Cost. Now that self confidences has been regains, it is necessary to acquire humility: 6. If firms do not seek to maximize profits, their output will not be that at which the marginal cost and revenue are equal.(Answer: T)*3 The lads who think they are clever will aruge: If the firm doesn't care about profits, might it not accidentially operate at this output? And according to lesson 1, that would make the statement false. But let's see where such superdicial cleverness leads. Such a student will feel impelled to answer the following question as follows: 6a. If firms seek not to maximize profit, their output will not be that at which the marginal cost and revenue are equal.(Answer:T－but really F) For one thing, marginal cost equals marginal revenue also at minimum profits. For another thing, a firm can make a mstake, can't it? To return to the original question, everything is a matter of probability. There are many possible outputs, and probably only one maximizes profits. Besides, profits usually aren't maximized when marginals cost equals (total) revenue. Lesson 3: A Statement That Can Be True Is True *3: Ibid., p. 44. T means theoretically. --

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