Three processes have the following costs: Process A has a fixed cost of $2,000 and variable cost of $3.00/unit. Process B's fixed cost is $4,000 and variable cost is $2.60/unit. Process C's fixed cost is $8,000 and variable cost is $2.40/unit.
-A firm can procure gummy bags for $1.25 and sell them for $1.99. Instead of purchasing from outside, the firm could buy a gummy bag machine for $2,500 and make gummy bags for $1.00 per unit. At what point is buying the units the same as making them?
A)5,000 units
B)10,000 units
C)15,000 units
D)20,000 units
E)25,000 units

Question

Quizplus · Accepted Answer

The cost to buy is $1.25 per unit. The cost to make is $2,500 (fixed) + $1.00 per unit. Setting the total costs equal: $1.25x = $2,500 + $1.00x. Solving for x gives 10,000 units.

Three Processes Have the Following Costs: Process a Has a Fixed