Demron Is in Serious Negotiations to Purchase a Welding Machine

question 23

Multiple Choice

Demron is in serious negotiations to purchase a welding machine that will enable them to perform their own welding.They currently have their welding outsourced at a cost of $1.50 per weld and a fixed cost of $45,000.Their marketing team feel that they can sustain an annual sales volume sufficient to require 35,000 welds.If a fancy new welding rig costs $13,500 what is the maximum variable cost per weld that Demron should be willing to pay in order to bring this process in-house?

• A) $3.00 per weld
• B) $2.40 per weld
• C) $2.00 per weld
• D) $1.45 per weld

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Definitions:

Perfect Competitor

A theoretical market structure where numerous small firms compete against each other with no single company controlling the market price.

Long Run

A period in economics sufficient for all markets to adjust, including production, labor, and capital.

Marginal Revenue

The additional income received from selling one more unit of a product.

Output

The total amount of goods and services produced by an economic system over a specific period.