A Firm Is Considering Two Location Alternatives

question 178

Multiple Choice

A firm is considering two location alternatives. At location A, fixed costs would be $4,000,000 per year, and variable costs $0.30 per unit. At alternative B, fixed costs would be $3,600,000 per year, with variable costs of $0.34 per unit. If annual demand is expected to be 9 million units, which plant offers the lowest total cost?

• A) Plant A, because it is cheaper than Plant B for all volumes below 10,000,000 units.
• B) Plant B, because it is cheaper than Plant A for all volumes below 10,000,000 units.
• C) Plant A, because it is cheaper than Plant B for all volumes.
• D) Plant B, because it has the lower variable cost per unit.
• E) Neither Plant A nor Plant B, because the crossover point is at 9 million units.

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Definitions:

Glutamate

An important neurotransmitter in the brain that plays a key role in learning and memory, also serving as a flavor enhancer in food.

Umami

One of the five basic tastes, often described as savory or meaty, associated with flavors of broth, cheese, and soy sauce.

Taste Receptors

Specialized sensory cells located on the tongue and in the mouth that are responsible for detecting and interpreting tastes.

Sclera

The white, opaque, fibrous outer layer of the eyeball; it provides protection and form.