Gulf Aluminum Extrusion (GAE) plans to replace its existing extrusion facility with a new one. GAE is considering two possible capacities for the new facility:facility A with 4000 or facility B with 5500 units per year. The 4000 unit plant would have an annual fixed cost of BD 100,000 and a per unit production costof BD 56; The 5500-unit plant would have an annual fixed cost of BD 140,000 and a per unit cost of BD 49. GAE sells its products for an average price of BD70 per unit.• Compute the indifference point of the two capacity alternatives.• Suppose GAE expects its sales to be 2000 units next year, and it expects them to grow by 7% each year for the next 5 years. Which capacity option wouldyou recommend?O 1. Indifference point is about 5916, capacity B is recommended.O 2. Indifference point is about 5318, capacity A is recommended.O 3. None of the above.O 4. Indifference point is about 5714, capacity A is recommended.

The indifference point is the level of volume at which total costs, and hence profits, are the same…

Gulf Aluminum Extrusion (GAE) plans to replace its existing extrusion facility with a new one. GAE is considering two possible capacities for the new facility facility A with 4000 or facility B with 5500 units per year. The 4000 unit plant would have an annual fixed cost of BD 100,000 and a per unit production c of BD 56; The 5500-unit plant would have an annual fixed cost of BD 140,000 and a per unit cost of BD 49. GAE sells its products for an average price of E 70 per unit. • Compute the indifference point of the two capacity alternatives. • Suppose GAE expects its sales to be 2000 units next year, and it expects them to grow by 7% each year for the next 5 years. Which capacity option wou you recommend? O 1. Indifference point is about 5916, capacity B is recommended. O 2. Indifference point is about 5318, capacity A is recommended. O 3. None of the above. O 4. Indifference point is about 5714, capacity A is recommended.

Gulf Aluminum Extrusion (GAE) plans to replace its existing extrusion facility with a new one. GAE is considering two possible capacities for the new facility facility A with 4000 or facility B with 5500 units per year. The 4000 unit plant would have an annual fixed cost of BD 100,000 and a per unit production c of BD 56; The 5500-unit plant would have an annual fixed cost of BD 140,000 and a per unit cost of BD 49. GAE sells its products for an average price of E 70 per unit. • Compute the indifference point of the two capacity alternatives. • Suppose GAE expects its sales to be 2000 units next year, and it expects them to grow by 7% each year for the next 5 years. Which capacity option wou you recommend? O 1. Indifference point is about 5916, capacity B is recommended. O 2. Indifference point is about 5318, capacity A is recommended. O 3. None of the above. O 4. Indifference point is about 5714, capacity A is recommended.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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