The Ottomans Own a Winter Cabin in Durango, Colorado

question 14

Multiple Choice

The Ottomans own a winter cabin in Durango, Colorado. They purchased the cabin in 2004 for $65,000. During 2018, a blizzard, a federally-declared disaster, partially destroys the cabin. The fair market value of the cabin after the blizzard is $70,000. The insurance company estimates that the cost of repairing the cabin will be $40,000. The insurance company will reimburse the Ottomans for 70% of the repair cost. What can they deduct as a casualty loss if their adjusted gross income for the year is $80,000?

• A)$3,900
• B)$4,000
• C)$8,000
• D)$11,900
• E)$12,000

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Definitions:

Profit-Maximizing

A strategy where a firm sets its production level to achieve the highest possible profit, where marginal cost equals marginal revenue.

Profit-Maximizing Monopolistically Competitive

A situation where a firm in a monopolistically competitive market sets its product prices and output levels to maximize its profits, recognizing it has some degree of market power.

MR = MC

An economic principle where a firm maximizes its profit when its Marginal Revenue equals Marginal Costs.

Marginal Revenue

The extra income obtained from the sale of an additional unit of a product or service.