Scenario 2.6 You Currently Purchase a Part Used in Your Production Process

question 71

Multiple Choice

Scenario 2.6
You currently purchase a part used in your production process from an outside supplier, and have decided to begin making this part in-house. You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment. Cost information for these two options is as follows:

-Use Scenario 2.6 to solve this mystery. At an annual requirement of 40,000 units, what does the company save per year by selecting the lower-cost option?

• A) $150,000
• B) $300,000
• C) $50,000
• D) $40,000

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Definitions:

Monopoly

A market structure in which a single seller controls the entire supply of a product or service, and hence, the price, effectively blocking entry for any competitors.

Prisoners' Dilemma

A scenario in game theory in which two individuals acting in their own self-interest do not achieve the optimal outcome, illustrating the conflict between individual and collective rationality.

Cooperation

The process of groups or individuals working together towards a common goal.

Antitrust Law

Legislation enacted by governments to prevent monopolies and promote competition by regulating anti-competitive conduct by companies.