3. Union Water Purification Company (UWPC) is evaluating two possible designs for a new production facility to replace their present obsolete facility. The total cost functions for the two facilities are: TC1 = 550,000 + 600Q TC2 = 300,000 + 825Q Both plants would produce an identical desalination device that sells for $2,600 per unit. UWPC foresees no change in demand and intends to estimate sales from an average of the last seven years: Year Sales ($000) 1,100 1,075 1,200 1,250 1,150 1,100 1,125 Calculate the operating leverage for both plant designs. Find the level of production at which neither plant design has an advantage. Considering the sales information given, which plant design has a greater probability of cost savings?
3. Union Water Purification Company (UWPC) is evaluating two possible designs for a new production facility to replace their present obsolete facility. The total cost functions for the two facilities are: TC1 = 550,000 + 600Q TC2 = 300,000 + 825Q Both plants would produce an identical desalination device that sells for $2,600 per unit. UWPC foresees no change in demand and intends to estimate sales from an average of the last seven years: Year Sales ($000) 1,100 1,075 1,200 1,250 1,150 1,100 1,125 Calculate the operating leverage for both plant designs. Find the level of production at which neither plant design has an advantage. Considering the sales information given, which plant design has a greater probability of cost savings?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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3. Union Water Purification Company (UWPC) is evaluating two possible designs for a new production facility to replace their
present obsolete facility. The total cost functions for the two facilities are:
-
- TC1 = 550,000 + 600Q
- TC2 = 300,000 + 825Q
Both plants would produce an identical desalination device that sells for $2,600 per unit.
UWPC foresees no change in demand and intends to estimate sales from an average of the last seven years:
Year Sales ($000)
- 1,100
- 1,075
- 1,200
- 1,250
- 1,150
- 1,100
- 1,125
- Calculate the operating leverage for both plant designs.
- Find the level of production at which neither plant design has an advantage.
- Considering the sales information given, which plant design has a greater probability of cost savings?
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