Question

A.) A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and average variable costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.

The quantity of output at which the firm  is indifferent between the two technologies is ______

B.) A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and average variable costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.

What is the cost of production at the number of units where the company is indifferent between the two technologies?

a. $750

b. $850

c. $950

d. $1050

Answer 1

A) Technology A has fixed costs of $500 and average variable costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100. Let the quantity at which these two bear the same cost = Q.

Cost of producing Q units in A = 500 + 50Q and cost of producing Q units in B = 250 + 100Q

500 + 50Q = 250 + 100Q

250 = 50Q

Q = 5 units.

B) Cost of production is 500 + 50*5 = $750.