Boss Hogg is CEO of a corporation in a perfectly competitive industry (with identical firms), with isoquants as depicted here. Prior to the drop in the corporate income tax, the industry was in long run equilibrium. Boss Hogg's firm was producing at production plan A, selling its out put at price p* and paying r* for capital and w* for labor. A decrease in the corporate income tax is, in this problem, equivalent to a reduction in the rental rate of capital. F D :M -----. k* a. At his annual Board of Directors meeting, Boss Hogg informs the Board that he anticipates the passage of corporate tax reform that will reduce the corporate income tax. He does not believe this will have any effect on any prices other than the rental rate of capital – and he informs the board that he has concluded switching to produc plan F will be the firm's profit maximizing strategy once the corporate income tax has been reduced. What must Boss Hogg believe happens to the marginal product of labor as capital is :E I' 1* l"

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