Question

Suppose HEB considers expanding the capacity of its fresh sushi making equipment at its stores at the corner of SPID & Staples and at the corner of SPID & Waldron. It can do so in one of two ways:
(1) HEB can purchase fungible, general-purpose equipment that can be resold at close to its original value. Or
(2) HEB can invest in highly specialized equipment which, once in place, has virtually no salvage value.
Assuming that each choice results in the same production costs once installed, under which choice is the HEB likely to encounter greater likelihood of entry into fresh sushi-making by Walmart and other potential competitors, and why?

Answer 1

Answer: Option 2

Explanation: since the production cost is the same once installed, the highly specialised equipment purchased will help HEB produce more sushi.