Refer to the figure below. If the equation of MC of unreported income is MC = 4 + 2X, and the MB of unreported income is MB = 44 - 3X, what will be the amount of unreported income? How much of a change will there be if enforcement becomes more strict, resulting in MC = 9 + 2X?
Set MB = MC. Giving 4 + 2X = 44 - 3X. Therefore, X* = 8. The increase in MC reduces X* to 7.
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What will be an ideal response?
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