The Cost Function for Liao Ltd Is: TC = $800

question 12

Multiple Choice

The cost function for Liao Ltd is: TC = $800 + 0.375 × Revenue. If Liao expects after-tax income of $600 and the tax rate is 40%, what is the firm's margin of safety?

• A) $3,680
• B) $2,400
• C) $2,880
• D) $1,600

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Definitions:

Fixed Costs

Expenses that do not change with the volume of production or sales and must be paid regardless of the business activity level.

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials, energy usage, or labor directly associated with production.

Flash Frozen

A method of freezing food quickly at extremely low temperatures to preserve its quality, nutrients, and taste.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and equipment leases.