Assume that The Donald earns $30,000 in taxable income per year and that the average tax rate is 20%.Also assume that there is a penalty of $.40 for each dollar of taxable income that is not reported (i.e. if underreporting is detected, Donald owes the tax and the penalty or a total of $.60 for each $1 of unreported income).The indifference curves in Figure 5 below are drawn under the assumption that there is a 30% probability of an audit that successfully detects unreported income.Note, in this problem, there is no presumption that Donald will report any taxable income.Based on this information, you predict the Donald will report _________ in income and pay _______in taxes.

Pay SHOW YOUR WORK Figure 5, Note Income is in Thousands of $ - IN 32 30 28 26 24 22 20 18 16 12 2 4 6 8 22 24 10 12 14 16 18 20 26 28 30 32