Consider again the choice between outsourcing and in-house assembly of HomeNet discussed in Section 8.3 and analyzed in Table 8.6. Suppose, however, that the upfront cost to set up for in-house production is $6 million rather than $5 million, and the cost per unit for in-house production is expected to be $92 rather than $95.

a. Suppose the outside supplier decides to raise its price above $110/unit. At what cost per unit for the outsourced units would Cisco be indifferent between outsourcing and in-house assembly?

b. Alternatively, suppose the cost for outsourcing remains $110/unit, but expected demand increases above 100,000 units per year. At what level of annual sales, in terms of units sold, would Cisco be indifferent between these two options?