A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, andvariable costs $0.30 per unit, or TCA = 4,000,000+ 0.30 QAt location B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit, or TCB =3,600,000+0.35Q. If annual demand is expected to be 10 million units, which plant offers the lowest totalcost?O Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units.O Plant A, because it is cheaper than Plant B for all volumes.Plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units.O Neither Plant A nor Plant B, because the crossover point is at 10 million units.Plant B, because it has the lower variable cost per unit.

The concept of costs: The total cost of producing one single unit of output consists of two…

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit, or TCA = 4,000,000+ 0.30 Q At location B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit, or TCB = 3,600,000+0.35Q. If annual demand is expected to be 10 million units, which plant offers the lowest total cost? ↓ Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units. O Plant A, because it is cheaper than Plant B for all volumes. Plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units. O Neither Plant A nor Plant B, because the crossover point is at 10 million units.

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit, or TCA = 4,000,000+ 0.30 Q At location B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit, or TCB = 3,600,000+0.35Q. If annual demand is expected to be 10 million units, which plant offers the lowest total cost? ↓ Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units. O Plant A, because it is cheaper than Plant B for all volumes. Plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units. O Neither Plant A nor Plant B, because the crossover point is at 10 million units.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Cost of Production

In economic theory, production costs are the costs incurred by an industrial organization when it engineers a project or provides a service that generates revenue and benefits. Labor costs, raw materials, consumable manufacturing costs, and general overhead sum up, accounting for production costs. Total cost data is calculated by combining total direct costs of materials, labor costs, and total production costs.

Question

100%

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and
variable costs $0.30 per unit, or TCA = 4,000,000+ 0.30 Q
At location B, fixed costs would be $3,600,000 per year, with variable costs of $0.35 per unit, or TCB =
3,600,000+0.35Q. If annual demand is expected to be 10 million units, which plant offers the lowest total
cost?
O Plant B, because it is cheaper than Plant A for all volumes over 8,000,000 units.
O Plant A, because it is cheaper than Plant B for all volumes.
Plant A, because it is cheaper than Plant B for all volumes over 8,000,000 units.
O Neither Plant A nor Plant B, because the crossover point is at 10 million units.
Plant B, because it has the lower variable cost per unit.

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