firm plans to begin production of a new product. The manager must decide whether to buy the product from a contractor at $19 a piece or to produce them in house. There are two alternative processes that could be used for in-house production: Process 1 has a (annualized) fixed cost of $ 150,000 and a variable cost of $16 per unit. Process 2 has a (annualized) fixed cost of $ 80,000 and a variable cost of $17 per unit. The product sells for $20 per unit. Determine the range of demand for which the manager would choose each option as the best option.
firm plans to begin production of a new product. The manager must decide whether to buy the product from a contractor at $19 a piece or to produce them in house. There are two alternative processes that could be used for in-house production: Process 1 has a (annualized) fixed cost of $ 150,000 and a variable cost of $16 per unit. Process 2 has a (annualized) fixed cost of $ 80,000 and a variable cost of $17 per unit. The product sells for $20 per unit. Determine the range of demand for which the manager would choose each option as the best option.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A firm plans to begin production of a new product. The manager must decide whether to buy the product from a contractor at $19 a piece or to produce them in house. There are two alternative processes that could be used for in-house production: Process 1 has a (annualized) fixed cost of $ 150,000 and a variable cost of $16 per unit. Process 2 has a (annualized) fixed cost of $ 80,000 and a variable cost of $17 per unit. The product sells for $20 per unit.
Determine the range of demand for which the manager would choose each option as the best option.
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