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firm b produces gadgets. the price of gadgets is $2 each. firm b has total fixed costs of $300,000 and variable costs of $1.40 per gadget. the corporate tax rate is 30%. if the economy is strong, the firm will sell 2,000,000 gadgets. if the economy enters a recession, the firm will sell only half as many gadgets. if the economy is strong, the after-tax profit of firm b will be _________.

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abiolataiwo2015

If the economy is strong, the after-tax profit of firm b will be $630,000.

Firm b After-tax profit

Sales $4,000,000

($2×$2,000,000)

Variable Costs $2,800,000

($1.40×2,000,000)

Fixed Costs $300,000  

EBT $900,000

($4,000,000-$2,800,000-$300,000)

Tax $270,000

($900,000×30%)

After-tax profit $630,000

($900,000-$270,000)

Inconclusion if the economy is strong, the after-tax profit of firm b will be $630,000.

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