What is the point of indifference between company A and company C? How does this point of indifference affect Yowzah's decision?
What will be an ideal response?
Answer: Company A appears to have a fixed cost of 75,000 and company C appears to have a fixed cost of 160,000. The variable cost (slope) for company A is (375,000 - 75,000)/20,000 = 15. The variable cost (slope) for company C is (280,000 - 160,000)/20,000 = 6.
The point of indifference can be found by setting the two lines equal to each other, so 75,000 + 15x = 160,000 + 6x; 9x = 85,000; x = 9444.4
The point of indifference doesn't affect Yowzah's decision in this range as both companies have higher costs than their fierce rival company B around this range of output.
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