Profit calculation question, two parts
nataligurencxfriesA small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $15.
a. At what volume of output would the two alternatives yield the same profit?
b. If expected annual demand is 12,000 units, which alternative would yield the higher profit?
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