Asked by morgan lewallen on Jul 12, 2024
Verified
At what quantity is the firm indifferent between the two technologies?
A) 10
B) 2
C) 5
D) 8
Fixed Costs
Expenses that do not vary with the level of output or sales, such as rent, insurance, and salaries, distinguished by their consistency.
Marginal Costs
The extra cost incurred by producing one additional unit of a product.
Indifferent
A state where an individual or group has no preference or difference in satisfaction among options, showing no bias or partiality towards any choice.
- Uncover the elements that dictate the choice between alternative technologies or business policies based on their cost implications.
Verified Answer
KN
Kaliea NilesJul 16, 2024
Final Answer :
C
Explanation :
To determine the quantity at which the firm is indifferent, we need to find the point at which the total costs of both technologies are equal. The total cost for Technology A is:
TC(A) = $500 + $50Q
where Q is the quantity produced. The total cost for Technology B is:
TC(B) = $250 + $100Q
At the point of indifference, TC(A) = TC(B). Therefore:
$500 + $50Q = $250 + $100Q
Solving for Q, we get:
Q = 5
So at a production quantity of 5, the firm is indifferent between Technology A and Technology B.
Since Technology B has lower fixed costs and higher marginal costs, it will be more profitable for larger quantities while Technology A will be more profitable for smaller quantities. Therefore, the best choice will depend on the expected production quantity.
TC(A) = $500 + $50Q
where Q is the quantity produced. The total cost for Technology B is:
TC(B) = $250 + $100Q
At the point of indifference, TC(A) = TC(B). Therefore:
$500 + $50Q = $250 + $100Q
Solving for Q, we get:
Q = 5
So at a production quantity of 5, the firm is indifferent between Technology A and Technology B.
Since Technology B has lower fixed costs and higher marginal costs, it will be more profitable for larger quantities while Technology A will be more profitable for smaller quantities. Therefore, the best choice will depend on the expected production quantity.
Learning Objectives
- Uncover the elements that dictate the choice between alternative technologies or business policies based on their cost implications.