Question

Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30¢ per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50¢ per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.

If the economy is strong, the total revenue of firm C will be

$1,680,000.

$2,400,000.

$2,000,000.

$1,400,000.

Answer 1

Total Revenue = Price × Quantity

Price of coat hanger by C Firm = $1.20

Quantity sell = 2,000,000

Total Revenue = 2,000,000× $1.20 =$2,400,000

Option 2: $2,400,000