A Manager Invests $400,000 in a Technology to Reduce Overall

question 4

Multiple Choice

A manager invests $400,000 in a technology to reduce overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.After a year,the manager has an opportunity to outsource production to another company at a cost per unity of $1.75.If you are the manager,you

• A)should consider the $400,000 as sunk cost and therefore it should not be relevant to the decision.
• B)should base your decision upon economic profit and not accounting profit
• C)should avoid the fixed-cost fallacy
• D)all the above

---

Definitions:

Short Run

A period in economic analysis where at least one factor of production is fixed, limiting the immediate ability of businesses to adjust to market changes.

Firm's Output

The total quantity of goods and services produced by a company during a specific period.

Short Run

A timeframe in economics during which at least one factor of production is fixed, allowing only some variables to change in response to changes in demand or other influences.

Long Run

An economic interval where all production elements and expenses can fully adapt, as they are changeable, permitting comprehensive adjustments to any variations.