Question
An entrepreneur making a single product must choose between a capital-intensive (i.e. high fixed and low variable costs) production process and a labour-intensive (i.e. low
An entrepreneur making a single product must choose between a capital-intensive (i.e. high fixed and low variable costs) production process and a labour-intensive (i.e. low fixed and high variable costs) production process. Assume the capital-intensive process entails variable costs per unit of $6 and total fixed costs per period of $1 000 000 and that for the labour-intensive production process these costs are $20 and $100 000, respectively. If the sales price is $30 per unit and expected sales are 61 000 units per period, then the entrepreneur should
A. reject both the labour-intensive and capital-intensive production processes for having negative expected profits
B. be indifferent between the labour-intensive and capital-intensive production processes
C. choose the capital-intensive production process
D. choose the labour-intensive production process
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