Given the following: Corporation A: Spends a lot of money automating everything in its production process by
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Question:
Given the following:
- Corporation A:Spends a lot of money automating everything in its production process by renting expensive robotics for $400,000 per year with a long term hard to cancel lease. Consequently they have few employees but very high fixed cost per year.
- The product sells for $20 per unit, the variable cost is $2 per unit, and the fixed costs are $400,000 per year.
- Corporation B:Chose to keep its automation to a minimum and instead hires human workers to complete most of the production process. As a consequence it has very low fixed cost and can change the number of workers hired (or laid off) to meet increasing or decreasing demand.
- The product sells for $20 per unit, the variable cost are $12 per unit and the fixed costs are $60,000 per year.
Questions:
- Which of these corporations will have a lower breakeven point?
- Which of these corporations is in a better situation to advertise to insure that they reach their breakeven point?
- If demand is very very high and both firms are operating well beyond their breakeven points, which firm will generate the most profit?
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