A Firm with Constant Variable Costs Has a Survival Revenue

question 37

Multiple Choice

A firm with constant variable costs has a survival revenue breakeven of $375,000. This year it had $250,000 in sales, $100,000 of which was a fixed cost. What are the firm's cash fixed costs?

• A) $150,000
• B) $225,000
• C) $625,000
• D) $937,500

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute away from more expensive goods towards cheaper ones.

Income Effect

The impact on consumer's choice arising from a change in their income, influencing their purchasing power.

Giffen Good

A type of inferior good for which demand increases as the price increases, violating the basic law of demand.

Inferior Good

A type of good whose demand decreases when consumer income rises, and vice versa, often contrasted with normal goods whose demand increases with rising income.