Question

Given the information below, answer the following two questions. Firm A Firm B Q 1000 1000 P 1 1 V 0.7 0.2 FC 200 700 A given change in Q will result in a larger change in EBIT for Firm ___ A. A B. B C. More information is needed to answer this question

Answer 1

Firm A and Firm B

C. More information is needed to answer this question

Step-by-step explanation:

a) Data and Calculations:

Firm A Firm B

Q 1000 1000

P 1 1

V 0.7 0.2

Contr 0.3 0.8

FC 200 700

EBIT 100 100

b) More information is certainly required to answer this question. Specifically, the direction of the given change in Q is not indicated. The answer will become clearer with this information. The question to ask is this: is the given change in Q an increase or a decrease?