Suppose That You Have Two Processes a and B for Producing

question 6

Multiple Choice

Suppose that you have two processes A and B for producing a widget. Process A has a fixed cost of $10,000 and per unit variable cost of $80.00. Process B has a fixed cost of $30,000 and the per unit variable cost is $40.00. The widget sells for $100 regardless of production Process used. During the next three years (your planning horizon for the widgets) you expect the economy to be pretty good with sales of widgets to be at least 700 units per year. You will

• A) be indifferent between choosing Process A and B, because they both have the same break-even point.
• B) choose Process A since it has a low fixed cost.
• C) choose Process B, since it has low variable cost.
• D) choose either Process A or B, since both will result in same profit for the next three years.
• E) choose Process B, since it will have higher net profit than Process A in the next three years.

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Definitions:

Real GDP

Real GDP, or Real Gross Domestic Product, measures the value of all goods and services produced by an economy in a specific period, adjusted for inflation, providing a more accurate representation of an economy's size and growth rate.

Standardized Shipping Containers

Uniformly sized containers used in global shipping, which simplify transportation, handling, and storage of goods.

Ground Transportation

Travel or movement of people or goods using vehicles operating on the ground, such as buses, trains, or cars.

Air Freights

The transportation of goods by aircraft, a method often chosen for its speed and efficiency, especially for long-distance shipments of perishable or time-sensitive items.