Use the following setup for the next question.
A firm is deciding between two different sewing machines.Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.
-At what quantity is the firm indifferent between the two technologies?
A)10
B)2
C)5
D)8

Question

​Use the following setup for the next question.
A firm is deciding between two different sewing machines.Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.
-​At what quantity is the firm indifferent between the two technologies?
A)​10
B)2
C)5
D)​8

Quizplus · Accepted Answer

To determine the quantity at which the firm is indifferent, we need to find the point at which the total costs of both technologies are equal. The total cost for Technology A is:

TC(A) = $500 + $50Q

where Q is the quantity produced. The total cost for Technology B is:

TC(B) = $250 + $100Q

At the point of indifference, TC(A) = TC(B). Therefore:

$500 + $50Q = $250 + $100Q

Solving for Q, we get:

Q = 5

So at a production quantity of 5, the firm is indifferent between Technology A and Technology B.

Since Technology B has lower fixed costs and higher marginal costs, it will be more profitable for larger quantities while Technology A will be more profitable for smaller quantities. Therefore, the best choice will depend on the expected production quantity.

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Use the Following Setup for the Next Question