Truman Company Assembles Products from a Group of Interconnecting Parts

question 111

Essay

Truman Company assembles products from a group of interconnecting parts.The company produces some of the parts and buys some from outside vendors.The vendor for Part Y has just increased its price by 35%,to $5 per unit for the first 5,000 units and $4.50 per additional unit ordered each year.The company uses 7,500 units of Part Y each year.Unit costs if the company makes the part are as follows:
Should Truman Company continue to purchase Part Y or begin making it?

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Definitions:

Income

Funds acquired regularly as a result of work or investment ventures.

Utility Function

Represents a consumer's preferences in a way that the utility or satisfaction they get from various goods or services can be measured and compared.

Budget Constraint

A limitation on the consumption choices of individuals or households, based on their income and the prices of goods and services.

Income

Income is the amount of money or goods received, typically within a certain period, in exchange for labor, goods sold, or investment.