Consider the difference between Option A and Option B in terms of tradeoffs between facilities and transportation cost only. Suppose want to serve the market in Tyran, but you have decided not to build a factory there. Suppose you have decided to supply Tyran from the factory you already built in Calopeia.

When does it make sense to build a warehouse in Tyran compared to just using the warehouse you already have in Caleopeia? What is the value of adding a new warehouse?

Option A: Would not build a new warehouse in Tyran

New Facilities Cost = $0

Transportation Cost from Factory (in Calopeia) to Warehouse (in Calopeia) using full truckloads = $15,000 per truck / 200 units = $75 per unit.

Transportation Cost from Warehouse (in Calopeia) to customer in Tyran = $200 per unit (because we are fulfilling across borders).

Total Transportation Cost = $75 + $200 = $275

Option B: Would build a new warehouse in Tyran

New Facilities Cost = $100,000

Transportation Cost from Factory (in Calopeia) to Warehouse (in Calopeia) using full truckloads = $20,000 per truck / 200 units = $100 per unit.

Transportation Cost from Warehouse (in Calopeia) to customer in Tyran = $150 per unit (because we are fulfilling across borders).

Total Transportation Cost = $100 + $150 = $250

In short, we save $25 per unit on transportation cost by building a warehouse in Tyran, but we pay $100,000 upfront in additional facilities cost.

Calculate the the number of units we would need to sell in Tyran at the least to breakeven on the cost of opening the warehouse in Tyran vs. using the warehouse we already have in Caleopeia.

Do you expect you will sell at least that many units in Tyran?

We can use similar breakeven comparisons to determine:

Whether we will sell enough units to justify opening a warehouse in other regions.

Whether we will sell enough units to justify opening a factory in other regions.

Whether we will sell enough units to serve a given market at all (or just ignore it).