A Business Is Operating at 90% of Capacity and Is

question 76

Multiple Choice

A business is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $15 per unit. The unit cost for the business to make the part is $20, including fixed costs, and $12, not including fixed costs. If 30,000 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

• A) $150,000 cost increase
• B) $ 90,000 cost decrease
• C) $150,000 cost increase.
• D) $ 90,000 cost increase.

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Definitions:

Own Price Elasticity

An index that illustrates the reaction of demand for a good to the adjustment in its price.

Price Elasticity of Supply

Price Elasticity of Supply measures how the quantity of a good supplied changes in response to a change in price, indicating how sensitive the supply of the good is to price changes.

Fiberglass Truck Hoods

Truck hoods made from fiberglass, a lightweight and durable material, used to cover the engine area.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in consumers' income, holding all other factors constant.