Question

OceanGate sells external hard drives for $200 each. Its total fixed costs are $30 million, and its variable costs per unit are $140. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many. a. What will be the percentage decline in sales if the economy enters a recession?

Answer 1

Answer:

a. Percentage decline in sales if the economy enters a recession is 50%

Explanation:

We have the sales when the economy is strong is given at 2,000,000 hard drives.

We have the sales when the economy enters recession is only half as many as when the economy is strong, which is calculated as 2,000,000 * 0.5 = 1,000,000 hard drives.

So, the percentage decline in sales of hard drives if the economy enters a recession is calculated as:

( Sales in strong economy - Sales in recession economy) / Sales in strong economy * 100% = ( 2,000,000 - 1,000,000)/ 2,000,000 = 50%.

So, the answer is 50%.

Answer 2

Answer:

50%

Explanation:

Sales at strong state = 2 million

Sales in Recession = 1 million

% Decline = $\frac{2-1}{2}$ *100 = 50%