2. Two firms, Charcoal and 8-Down, both produce soft drinks (sodas). The price of a soda is $1.20 each. Charcoal has total fixed costs of $750,000 and variable costs of 30 cents per soda. 8-Down has total fixed costs of $400,000 and variable costs of 50 cents per soda. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 sodas. If the economy enters a recession, each firm will sell 1,400,000 sodas.
a. In a recession, what are the total costs to Charcoal and to 8-Down?
b. In a recession, what is the pre-tax profit and tax paid of Charcoal and 8-Down?
c. In a strong economy, what is the pre-tax profit of Charcoal and 8-Down?
d. In a strong economy, what is the tax paid by 8-Down?