Two Firms, a and B, Both Produce Widgets

question 76

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 is strong, the after-tax profit of Firm B will be

• A) $0.
• B) $6,000.
• C) $36,000.
• D) $60,000.

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Definitions:

Administrative Expenses

Administrative expenses are the costs associated with the general administration of a business, such as salaries of executive officers, legal and accounting fees, and office supplies.

Planning Budget

A budget prepared at the beginning of a period, reflecting the expected financial situation based on forecasted activities and conditions.

Tenant-Days

A measure used in the hospitality or healthcare industry, representing the total number of days that all tenants or patients have occupied the facility.

Planning Budget

A budget based on the level of planned output at the start of the budgetary period, used for planning purposes.