Answer:
The answer is:
Lay-off workers in "low-tech facility" i.e. $12 per claim.
Explanation:
<h2>
Step 1:</h2><h3>
The total fixed cost:</h3>
It is the cost, that the producer has to bear irrespective of the level of production.
<h3>Total variable cost:</h3>
It is the cost that alters with the changes with the changes in the production level.
<h2>Step 2:</h2>
The insurance firm has two facilities for claim process:
1: High-tech facility - new
2: Low-tech facility - old
<h3>
High-tech facility:</h3>
Claims handled in a month = 10,000
Fixed costs = $100,000
Variable costs = $100,000
<h3>
Low-tech facility:</h3>
Claims handled in a month = 2,000
Fixed costs = $16,000
Variable costs = $24,000
<h2>Step 3:</h2>
The fixed costs have to be borne, because they are unavoidable, but the variable costs can be ignored.
In high-tech facility, average variable cost per claim = $100,000/10,000 = $10 per claim
In low-tech facility, average variable cost per claim = $24,000/2,000 = $12 per claim
<h2>Step 4:</h2><h3>Conclusion:</h3>
If there is a decrease in the number of claims, the workers should be laid-off in low-tech facility, because variable cost per claim is higher in low-tech facility i.e. $12 per claim.
This will help in reducing the costs.
