In order to host the Winter Olympic Games, the city of Vancouver incurred a large debt, which will have to be repaid over time. Reflecting on this fact, one Vancouver resident complained, “The average guy is going to see his taxes increase” [Austen, 2010] Who is going to bear t he burden of these future taxes? [Hint: Take advantage of the theory of tax capitalization.]Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year.
To receive a normal profit, the firm described above would have to
Experience $10,000 less in cost.
Receive $90,000 more in revenue.
Receive $10,000 more in revenue.
Do nothing since it already earns a normal profit.