Justin Invested $5,000 in Stock A

question 50

Multiple Choice

Justin invested $5,000 in Stock A. Although it did not pay any dividends, Stock A appreciated in value and Justin earned a 50% return on this investment in one year"s time. He sold the
Stock and invested his net proceeds in Stock B. Stock B returned 25% during the year, and
Justin sold the stock, considering himself smart because he discovered that Stock A had
Returned only 20% during this second year. If the capital gains tax rate is 15%, how much did
Justin gain (or lose) by following this strategy?

• A)gain of $226
• B)gain of $1,256
• C)loss of $1,031
• D)loss of $94

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Definitions:

TVC

Total Variable Cost, which refers to the sum of all costs that vary with the level of output or production, such as raw materials and direct labor costs.

TC

An abbreviation for Total Cost, it quantifies the overall expense incurred in the production of goods or services, encompassing both fixed and variable costs.

Diseconomies of Scale

The phenomenon where production costs per unit increase as a firm's output expands, often due to complexities and inefficiencies at larger scales.

Long-Run Average Total Cost

The cost per unit of output incurred when all factors of production, including capital, are variable, indicating the lowest possible cost of production for each level of output when the scale of operation is changed.