Discussion
Above the indifference point between a manual and an automated process, the cheaper option is the one with the
Answer: C
Correct answer: lower variable cost per unit
Above the indifference volume the option with the steeper fixed cost but the flatter variable cost has pulled ahead, because the volume is large enough for the saving per unit to have repaid the extra fixed cost. Below that volume the reverse holds. The first cost and the payback period describe the investment but do not by themselves say which is cheaper at a given output.
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