Answer:
1 company to be in different is 15000 units
2 cost = approximate $300000
3 Total annual costs = approximate $380,000
4 cost is less for phoenix and Phoenix is the ideal location
5 Cost advantage = $18,000 so closed to $20000
Explanation:
given data
Atlanta fixed costs (annual) = 80000
variable costs (per unit) = 20
Phoenix fixed costs = 140000
variable costs = 16
solution
we consider here output level = x
and price will be = p
so here profit for location will be
profit = Revenue - Variable Cost - Fixed costs .............1
so here Atlanta profit is
Profit = px - 20x - 80000 ..................2
and Phoenix profit is
Profit = px - 16.1x - 140,000 ...................3
so now company to be in different is
px - 20x - 80000 = px - 16.1x - 140,000
solve we get x here
x = 15,384.62 = 15000 units
and
and now annual costs for phoenix will be as
annual cost = Variable cost + Fixed ...........4
cost = 16.1 × 10,000 + 140,000
cost = 161,000 + 140,000
cost = $301,000 = approximate $300000
and
Total annual costs will be as
Total annual costs = 20 × 15,384.62 + 80,000
Total annual costs = $387,692.3 = approximate $380,000
and
Annual demand = 20,000 units
so
Cost for Atlanta = 20 × 20000 + 80,000
Cost for Atlanta = $480,000
Cost for Phoenix = 16.1 × 20000 + 140,000
Cost for Phoenix = $462,000
so
cost is less for phoenix and Phoenix is the ideal location
and
now Cost advantage will be
Cost advantage = $480,000 - 462,000
Cost advantage = $18,000 so closed to $20000
