Answer:
The indifference point is 1,875,000 units.
Because the current machine has lower fixed costs, it has a lower cost from 0 units to 1,874,999. From 1,875,001 the new machine is more convenient,
Explanation:
Giving the following information:
Current machine:
Total cost= 75,000 + 0.32x
New machine:
Total cost= 150,000 + 0.28x
<u>To find the indifference point, we need to equal the cost functions and isolate x (number of units)</u>
75,000 + 0.32x = 150,000 + 0.28x
0.04x= 75,000
x= 1,875,000
The indifference point is 1,875,000 units.
Because the current machine has lower fixed costs, it has a lower cost from 0 units to 1,874,999. From 1,875,001 the new machine is more convenient.
