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 enters a recession, the after-tax profit of Firm B will be
A. $0.
B. $6,000.
C. $36,000.
D. $60,000.
E. -None of the options are correct.
E. -None of the options are correct.
$1,100,000 ? $240,000 FC ? 0.75(1,100,000) VC = $35,000 (1 ? 0.4) = $21,000.
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