Tax affect the amount of oil the company extracts

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Reference no: EM13851788

For five years, an oil drilling company has operated profitably in the state of Alaska (the only place it operates). Last year, the state legislature instituted a flat annual tax of $100,000 on any company extracting oil (or natural gas) in Alaska. How would this tax affect the amount of oil the company extracts? Explain. Suppose instead the state imposes a wellhead tax—that is, oil companies must pay a tax of $2.00 on each barrel of oil extracted. How would this tax affect the amount of oil the company extracts? Explain.

Reference no: EM13851788

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