Question

Kirstin is thinking about opening an Italian restaurant and needs to buy a dough maker. Machine A has fixed costs of $300 and variable costs of $1/pound. Machine B has fixed costs of $1000 and variable costs of $0.30/pound. What is the crossover point? For 500 pounds of dough, which machine is better? 1000; Machine A 1857; Machine A 1000; Machine B 538; Machine B 538; Machine A

Answer 1

Answer:

Crossover point: 1,000 pounds

at 500 pounds of production Machine A generates less cost for Kirstin

Explanation:

We need to solve for the quantity at which Kirstin is indiferent about which machine to purchase as both have the same cost:

Machine A: 1Q + 300

Machine B: 0.3Q + 1,000

1Q + 300 = 0.3Q + 1,000

(1-0.3)Q = 1,000 - 300

0.70Q = 700

q = 700/0.7 = 1,000

at 500 pounds;

Machine A: $ 1.00  (500) + $300  =  $  800

Machine B: $ 0.30  (500) + 1,000 =  $ 1,150

Machien A is better.