A Small Producer of Music Boxes Wants to Move to a Larger

question 73

Essay

A small producer of music boxes wants to move to a larger facility.Two alternative facilities have been found.Site 1 has a fixed cost of $500,000 per year,with a variable cost of $25 per unit.Site 2 has a fixed cost of $800,000 per year,but a variable cost of $22 per unit.
a.Write out the equation for total cost for each site.
b.At what volume of output would the two locations have the same total cost?
c.For what range of output would Site 1 be superior?
d.For what range of output would Site 2 be superior?

---

Definitions:

Total Sales

The total revenue generated from all products or services sold by a company within a specific period.

Decrease Price

A reduction in the cost at which goods or services are sold, often to stimulate demand or sell off excess inventory.

Building Capacity

The process of increasing the production capability of a facility or the potential to produce more outputs.

Capacity Constraints

Limitations related to the maximum level of output or activity that can be achieved due to existing resources.