Answer:
The total annual cost at point of indifference will be $380000
Explanation:
The point of indifference is a point where both the options will have equal annual cost and the firm will be indifferent in choosing both the options. To calculate the total cost at the point of indifference, we first need to equate both the cost equations to calculate the point of indifference in units and then calculate the cost at that point.
Let x be the number of units.
The total cost for Atlanta = 20x + 80000
The total cost for Phoenix = 16x + 140000
The point of indifference in units will be,
20x + 80000 = 16x + 140000
20x - 16x = 140000 - 80000
4x = 60000
x = 60000 / 4
x = 15000 units
The total cost at point of indifference will be = 20*(15000) + 80000 = $38000
This can be verified as = 16 * (15000) + 140000 = $380000
