Suppose that a tax system has marginal tax rates that increase with taxable income.Within this system, the government randomly selects 10 percent of taxpayers for an audit to check for underreporting of taxable income.If caught of tax evasion, the taxpayer is subject to a penalty equal to two times the underreported income.

Suppose that a tax system has marginal tax rates that increase with taxable income. Within this system, the government randomly selects 10 percent of taxpayers for an audit to check for underreporting of taxable income. If caught of tax evasion, the taxpayer is subject to a penalty equal to two times the underreported income. In a graph with underreported income on the horizontal axis, the marginal benefit of underreporting income will O slope upward. slope downward. be horizontal. In a graph with underreported income on the horizontal axis, the marginal cost of underreporting income will slope upward. slope downward. be horizontal. None of the above. Based on the information in the question, we cannot tell with certainty whether the marginal cost will slope upward, downward, or be horizontal