ABC Inc. has the manufacturing capacity to produce either cotton socks or wool socks, but not both. The company needs to choose between the two types of socks: cotton socks (each pair) has a unit variable cost of $2 and unit fixed cost of $1.5, and wool socks (each pair has a unit variable cost of $8 and unit fixed cost of $3.5. ABC is planning to sell cotton socks at $5 per pair and wool socks at $13 per pair. The unit costs are estimated at a productivity level of 1,000 pairs of socks each month.

Required: 

1. At what productivity level is ABC indifferent between producing cotton and wool socks?

2. ABC plans to produce and sell 2,000 pairs of socks each month. Which type of socks should ABC choose to sell?

Answer rating: 100% (QA)

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