Question

A company is trying to choose between two competing technologies. Technology A has fixed costs of $100 and variable costs of $2 per unit. Technology B has fixed costs of $200 and variable costs of $1 per unit. Which of the following is accurate?

A. Technology A may be cheaper for some output levels, while Technology B may be cheaper for other output levels
B. The company should choose Technology A as it has lower fixed costs
C. The company should choose Technology B as it has lower variable costs per unit
D. The two technologies will generate the same costs for any given level of output

Answer 1

Technology A may be cheaper for some output levels, while Technology B may be cheaper for other output levels.

Step-by-step explanation:

The accurate answer is A. Technology A may be cheaper for some output levels, while Technology B may be cheaper for other output levels. This is because the cost of each technology is determined by both fixed costs and variable costs. In the case of Technology A, the fixed costs are $100 and the variable costs are $2 per unit, while for Technology B, the fixed costs are $200 and the variable costs are $1 per unit.

To determine which technology is cheaper at different output levels, we can compare the total costs of both technologies. For lower output levels, Technology A may be cheaper due to its lower fixed costs. However, for higher output levels, Technology B may be cheaper because of its lower variable costs per unit.

Therefore, the company needs to analyze its expected output levels and compare the total costs of both technologies to make an informed decision.