Acme Corp makes vending machines for small companies. They have recently started selling their vending machines in Southern California, with a great deal of success, at a price of $5,000 per machine. The company is convinced that they will need to either build a new plant near San Diego or expand their existing plant in New Orleans. If they build a new plant near San Diego, the annual fixed costs will be $6,000,000 and the variable costs will be $3,000 for each vending machine delivered to Southern California. If they expand the Ncw Orleans plant, their annual fixed costs for the expansion will be $2,000,000 and the variable costs will be $4,000 for each vending machine delivered to Southern California.

(a) At what output will the two locations have the same total cost?

(b) Assume that the demand forecast is less than the output in part a. Which option should the company choose?

Answer rating: 100% (QA)

a If they build new plant the total cost will be fixed co... View the full answer