Regis Company Manufactures Plugs at a Cost of $36 Per

question 109

Multiple Choice

Regis Company manufactures plugs at a cost of $36 per unit, which includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually (as part of a larger product it produces) . Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs.
If Regis Company purchases the plugs but does not rent the unused facility, the company would:

• A) Save $3.00 per unit.
• B) Lose $6.00 per unit.
• C) Save $2.00 per unit.
• D) Lose $3.00 per unit.
• E) Save $1.00 per unit.

---

Definitions:

Autarky

A situation where a country or economy operates in total self-sufficiency, without engaging in international trade.

Production Possibilities

The different quantities of various goods and services that an economy can produce with given resources and technology.

Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable.

Comparative Advantage

The ability of a country, individual, or firm to produce a particular good or service at a lower opportunity cost than others.