Two Processes Are Under Consideration for a Certain Production

question 3

Essay

Two processes are under consideration for a certain production. Process A requires acquisition of a new machine that is estimated to have an initial cost of $65,000 and a salvage value of $52,000 at the end of its useful life of 6 years. In addition, the process requires a fixed cost of $47,000 per year and a variable cost of $250 per day. Alternatively, Process B requires the use of human labor. The process will need 6 workers, each earning
$200 per day and will have a fixed cost of $36,000 per year and additional variable costs of
$200 per day. Determine the minimum number of days per year required for the two processes to break even at an interest rate of 2% per year.

---

Definitions:

Demand

The desire of purchasers, consumers, clients, or buyers for a product or service, coupled with the capacity to pay for it.

Demand

The willingness and ability of consumers to purchase goods and services at various price points, at a given time.

Prices

Prices are the amounts of money expected, required, or given in payment for something.

Good

In economics, it refers to a material item that satisfies some human desire or need. Goods can be tangible, like a book, or intangible, like a service.