A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: $$\begin{array} { l r l }
\text { Location } & \mathrm { FC } \text { (annual) } & \mathrm { VC } \text { (per unit) } \
\hline \text { Atlanta } & \$ 80,000 & \$ 20 \
\text { Phoenix } & \$ 140,000 & \$ 16
\end{array}$$ What would be the total annual costs at the point of indifference?
A) $300,000
B) $240,000
C) $380,000
D) $220,000
E) $760,000

Question

A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: $$\begin{array} { l r l } 
\text { Location } & \mathrm { FC } \text { (annual) } & \mathrm { VC } \text { (per unit) } \
\hline \text { Atlanta } & \$ 80,000 & \$ 20 \
\text { Phoenix } & \$ 140,000 & \$ 16
\end{array}$$ What would be the total annual costs at the point of indifference?
A) $300,000
B) $240,000
C) $380,000
D) $220,000
E) $760,000

Quizplus · Accepted Answer

The point of indifference is where the total costs for both locations are equal. Set the total cost equations equal: $80,000 + 20Q = 140,000 + 16Q$. Solving for Q gives Q = 15,000 units. Substitute Q back into either total cost equation to find the total cost: $80,000 + 20(15,000) = $380,000$.

A Manufacturing Firm Is Considering Two Locations for a Plant