Sarah's Machinery Company is deciding to dump its current technology A for a new technology B with smaller fixed costs but bigger MCs. The current technology has fixed costs of $500 and MCs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah's Machinery Company indifferent between two technologies?

Question

Nasir

Business

4 May, 14:14

Sarah's Machinery Company is deciding to dump its current technology A for a new technology B with smaller fixed costs but bigger MCs. The current technology has fixed costs of $500 and MCs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah's Machinery Company indifferent between two technologies?

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Answers (1)

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Dorian Reed · Answer 1

The quantity that Sarah's Machinery Company is indifferent between two technologies is 5.

Explanation:

We are looking for the quantity that Sarah's Machinery Company is indifferent between two technologies, so we have to find the quantity that the total cost with technology A is the same to the total cost with technology B

Total cost technology A=500+50x

Total cost technology B=250+100x

500+50x=250+100x

500-250=100x-50x

250=50x

x=250/50=5