A Company Is Investigating Two Automated Approaches for Its Production

question 69

Essay

A company is investigating two automated approaches for its production process. It has collected the following cost information about each:
$\begin{array}{|l|c|c|}\hline \text { Alternative } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { CNC } & \$ 85,000 & \$ 2.70 \\\hline \text { FMS } & \$ 195,000 & \$ 1.30 \\\hline\end{array}$
a.At what point of production will the firm be indifferent to which process it wants?
b.Which process is more economical for an annual production volume of 50,000 units?
c.Which process is more economical for an annual production volume of 100,000 units?

---

Definitions:

Income Effect

Variations in the income of an individual or an economy and the subsequent effects on the demand for goods or services.

Discrimination

Unfair or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.

Profitable

A state or condition of yielding a financial profit or gain; it is often considered after all expenses have been deducted.

Opportunity Cost

The cost of foregone alternatives; the value of the best alternative that is not chosen.