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:

Psychoanalytic Therapy

A therapeutic approach developed by Sigmund Freud, which argues that bringing unconscious thoughts and feelings to consciousness helps resolve psychological disorders.

Client-centred Therapy

A humanistic psychotherapy approach developed by Carl Rogers, emphasizing an empathetic, nonjudgmental therapist-client relationship and the client's potential for self-discovery and change.

Systematic Desensitization

A behavioral therapy technique used to reduce phobic responses or anxiety through gradual exposure to the feared object or situation in a controlled manner.

Cognitive Therapy

A form of psychotherapy that focuses on changing unhelpful or unhealthy thought patterns, attitudes, and beliefs.