Two Firms, a and B, Both Produce Widgets

question 22

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. If the economy enters a recession, the after-tax profit of Firm A will be

• A)$0.
• B)$6,000.
• C)$30,000.
• D)$60,000.
• E)None of the options

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded by consumers over a range of prices.

Equilibrium Price

The cost where the amount of products offered matches the amount of products sought by consumers.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity of goods or services demanded at the market equilibrium price.

Supply Curve

A graphical representation showing the relationship between the quantity of goods that producers are willing to sell and the price levels of those goods.