You Are Considering the Purchase of Production Volume of 100,000

question 77

Multiple Choice

You are considering the purchase of production volume of 100,000 widgets per year.You can purchase either a single 100,000 widget per year machine that costs $1,000,000 or first buy a 50,000 per year machine and then if sales volume permits,purchase another machine later.If widget production volume costs the same per unit to produce,what should the cost of the 50,000 per year machine be (to you) if there is a real option to expand production?

• A) less than $500,000
• B) $500,000
• C) greater than $500,000
• D) it is impossible to tell from the information given

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Definitions:

Output Increases

A rise in the quantity of goods or services produced by a firm or economy.

Scale of Operations

The size or level at which a company or plant is operating, indicating its capacity to produce goods or services.

Average Cost Curve

A graphical depiction showing the cost per unit of output at different levels of production, reflecting the variability in total cost over volume.

Positive Profit

A financial gain that occurs when the revenues received from business activities exceed the expenses, costs, and taxes needed to sustain the activity.