In the late 1970s, the economist Arthur Laffer argued that lower tax rates, by stimulating employment and investment, could lead to increased tax revenue to the government. If this prediction is correct, a tax rate reduction would be a win-win policy, good for both taxpayers and the government. Laffer went on to sketch a tax revenue curve in the shape of an upside-down U. In general, the government's tax revenue can be expressed as R=t-B(t), where t denotes the tax rate ranging between 0 and 1 (i.e., between 0 and 100 percent) and B denotes the tax base. Explain why the "It is important to note that the method of Lagrange multipliers is relevant only in the case of binding constraints. Typically, we begin by seeking an unconstrained optimum. If such an opti- mum satisfies all of the constraints, we are done. If one or more constraints are violated, however, we apply the method of Lagrange multipliers for the solution.

tax base is likely to shrink as tax rates become very high. How might this lead to a U-shaped tax revenue curve?