Use the following information to answer Questions 33 - 35
Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with small fixed costs but big marginal costs.The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100.
-If the company plans to produce 9 machines,which technology should the firm choose?
A)The low-marginal-cost technology
B)The high-marginal-cost technology
C)Either technology because they are equally cost efficient
D)Need more information

Question

Quizplus · Accepted Answer

To determine which technology to choose, we need to compare the total costs of producing 9 machines under each technology.

For the current technology(A):
Total cost= Fixed cost + (Marginal cost X Units produced)
= $500 + ($50 X 9 machines)
= $950

For the new technology(B):
Total cost= Fixed cost + (Marginal cost X Units produced)
= $250 + ($100 X 9 machines)
= $1150

Therefore, the current technology(A) is more cost efficient as it has lower total costs than the new technology(B). Thus, Sarah's Machinery Company should choose the technology with low marginal cost even if it has high fixed costs.

Use the Following Information to Answer Questions 33 - 35