A Fabrication Company Wants to Increase Capacity by Adding a New

question 89

Multiple Choice

A fabrication company wants to increase capacity by adding a new machine. The firm is considering proposals from vendor A and vendor B. The fixed costs for machine A are $90,000 and for machine B, $75,000. The variable cost for A is $15.00 per unit and for B, $18.00. The revenue generated by the units processed on these machines is $21 per unit. If the estimated output is 5000 units, which machine should be purchased?

• A) machine A
• B) machine B
• C) either machine A or machine B
• D) no purchase because neither machine yields a profit at that volume
• E) purchase both machines since they are both profitable

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Definitions:

Cyclical Unemployment

A type of unemployment that relates to the cyclical trends in the economy, fluctuating with the business cycle's contraction and expansion phases.

Automobile Industry

A sector of the economy focused on the manufacturing, design, marketing, and selling of motor vehicles.

Unemployment Rate

The share of the labor market that is unemployed and searching for a job actively.

Structural Unemployment

Joblessness caused by the restructuring of industries, often as a result of advancements in technology, rather than variations in market supply or demand.