Discussion
Alternative A has fixed costs of 100 000 and variable cost 12 a unit; B has 250 000 and 7 a unit. Their indifference point is
Answer: B
Correct answer: 30 000 units
The indifference point is where the two total costs are equal:
\[ 100\,000 + 12Q = 250\,000 + 7Q \]\[ 5Q = 150\,000 \quad \Rightarrow \quad Q = 30\,000 \ \text{units} \]Below 30,000 the lower fixed cost of A wins; above it the lower variable cost of B does. The decision between the two is therefore entirely a judgement about expected volume.
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