2. A firm is considering three capacity alternatives: A, B, and C. Alternative A

Question

2. A firm is considering three capacity alternatives: A, B, and C. Alternative A would have an annual fixed cost of S100,000 and variable costs of $22 per unit. Alternative B would have annual fixed costs of S120,000 and variable costs of $20 per unit. Alternative C would have fixed costs of $80,000 and variable costs of $30 per unit. Revenue is expected to be $50 per unit. Which alternative has the lowest break-even quantity? 4000 b.Which alternative will produce the highest profits for an annual output of 10,000 units? c. Which alternative would require the lowest volume of output to generate an annual profit of $50,000?

Explanation / Answer

2) a) A has the lowest breakeven quantity

b) B will produce the highest profits for an annual output of 10000 units

c) C would require the lowest volume of output to generate an annual profit of $50000

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