Problem Set $8$

Note: You will find the Example videos in the module very helpful in answering these

questions. Please type in the space provided.

Question $1.$ Caliber Yachts in St Petersburg is going into production with a new model. Current

facilities are insufficient to handle the increased workload, so the company is considering three

alternatives, A $($new location$),$ B $($subcontract$),$ and C $($expand existing facilities$).$

Alternative A$,$ new location, would involve substantial fixed costs but relatively low

variable costs: fixed costs would be $$150,000$ per year, and variable costs would be $$500$

per boat.

Alternative B$,$ subcontracting would involve a cost per boat of $$2,500$

Alternative C$,$ expansion would require an annual fixed cost of $$40,000$ and a variable

cost of $$1,250$ per boat