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A small firm intends to increase the capacity of a bottleneck operation for producing a product by adding a new machine. Two alternatives, A and B, have been identified and the associated costs and revenues have been estimated.  Annual fixed costs would be $40000 for A and $30,000 for B; variable costs per unit would be $10 for A and $15 for B; and revenue per unit would be $20.

i.                    Find the total cost function for alternatives A and B, and the revenue function

ii.                  Draw both the total cost functions and the revenue function in the same figure.

iii.                Find the break-even point for the alternatives A and B and show it in the figure

iv.                At what volume of output would the two alternatives yield the same profit? Show it in the figure.

 


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