Solution
David answered on
Dec 20 2021
1. 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 cents per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 cents 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 A will be _______. (Points : 4)
$0
$6,000
$30,000
$60,000
None of these is co
ect.
Answer:
1.0($1,100,000) - 500,000 - 0.5($1,100,000) = ($50,000)(1-.4) = $30,000
2. Fiscal policy is difficult to implement quickly because (Points : 4)
it requires political negotiations.
much of government spending is nondiscretionary and cannot be changed.
increases in tax rates affect consumer spending gradually.
it requires political negotiations and much of government spending is nondiscretionary and cannot be changed.
it requires political negotiations and increases in tax rates affect consumer spending gradually.
Fiscal policy must be negotiated and can change only discretionary items within the budget, making it more difficult to implement. However, fiscal policy changes affect consumer spending almost immediately.
3. 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 cents per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 cents 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...