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Suppose a company has two processes to choose from. Process A will incur a total fixed cost of $1 million a year and a per-unit variable cost of $4. Process B will incur a total fixed cost of $1.5 million a year and a per-unit variable cost of $3.
(a) What is the cross-over point? Please provide the formula, at least one step of calculation, and the correct answer for full credit.
(b) What is the volume range over which Process A will incur a lower total cost? And why? Please provide the correct range of production volume and the reason for full credit.
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