Asked by
Joella Najarro
on Dec 08, 2024
Verified
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50¢ per widget. Firm B has total fixed costs of $240,000 and variable costs of 75¢ per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the economy is strong, the after-tax profit of Firm B will be
A) $0.
B) $6,000.
C) $36,000.
D) $60,000.
Corporate Tax Rate
The percentage of a corporation's profits that is paid as tax to the government.
Fixed Costs
Costs that do not change with the level of output or sales, such as rent or salaries.
Variable Costs
Costs that change in proportion to the level of production or business activity, such as materials and labor expenses.
- Ascertain the impact of economic fluctuations on the profitability of businesses with respect to their operating leverage.
- Explore the connection between interest rates, investment by businesses, and the spending habits of consumers.
Verified Answer
SM
Learning Objectives
- Ascertain the impact of economic fluctuations on the profitability of businesses with respect to their operating leverage.
- Explore the connection between interest rates, investment by businesses, and the spending habits of consumers.