Two Firms, a and B, Both Produce Widgets

question 40

Multiple Choice

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. Calculate firm A's degree of operating leverage.

• A)11.0
• B)2.86
• C)9.09
• D)1.00

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