Question: We have two options. Option 1 has high fixed costs but lower marginal cost and therefore higher per-unit marginal profits. Option 2 has lower fixed
We have two options.
- Option 1 has high fixed costs but lower marginal cost and therefore higher per-unit marginal profits.
- Option 2 has lower fixed costs but also lower marginal profits.
| Option 1 | Option 2 |
| Fixed cost 1,639 Per-unit Revenue 121 Marginal cost 61 | Fixed cost 1,231 Per-unit revenue 121 Marginal cost 87 |
Overall, Option 2 is better for small quantities but Option 1 is better with larger quantities. At what order quantity would we switch from option 2 to option 1?
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
