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 tax of firm C will be

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In a strong economy, Firm C sells 2,000,000 coat hangers. The revenue is $1.20 * 2,000,000 = $2,400,000. The variable cost is $0.30 * 2,000,000 = $600,000. Total cost including fixed costs is $600,000 + $750,000 = $1,350,000. Profit before tax is $2,400,000 - $1,350,000 = $1,050,000. Tax at 40% is $1,050,000 * 0.40 = $420,000.

Two Firms, C and D, Both Produce Coat Hangers