Two Firms, a and B, Both Produce Widgets

question 73

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 B's degree of operating leverage.

• A) .714
• B) 9.09
• C) 7.86
• D) 7.14

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Definitions:

Selective Perception

How individuals selectively focus on certain parts of media communications that resonate with their desires, while overlooking contrary opinions.

Selective Exposure

The tendency of individuals to favor information which reinforces their pre-existing views while avoiding contradictory information.

Stimulus Discrimination

The learned ability to differentiate between similar stimuli and respond appropriately to each.

Self-concept

An individual's perception of self, encompassing beliefs, attitudes, and perceptions of personal identity.