Franke Ltd. plans to begin to produce a new appliance. The manager must decide whether to purchase the motors for the appliance from a vendor or to produce them in-house. Either of the two processes could be used in the production. Purchasing the motors from the vendor would cost $10 per unit, while producing them in-house would have an annual fixed cost of $190,000 and a variable cost of $4 per unit.

(a) Determine Frankes cost function if they make the motors in-house. What is the cost function if they buy it from the vendor? Determine the function, which represents the difference between the two cost functions.

(b) If the annual demand for the new appliance is estimated as 275,000 units, should Franke produce the motors themselves?

(c) With what level of demand would Franke prefer to produce the motors themselves?