A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?

Question

Quizplus · Accepted Answer

In order for the firm to benefit from breaking the contract, the price per gallon of propane on the market has to be higher than the price agreed upon in the contract ($1.49 million divided by 500,000 gallons = $2.98 per gallon). Therefore, the minimum current market price of propane needs to be greater than $2.98 per gallon, which is choice B.

A Firm Has Contracted to Supply 500,000 Gallons of Propane