Given the following:

• Corporation A:Spends a lot of money automating everything in its production process by renting expensive robotics for $400,000 per year with a long term hard to cancel lease. Consequently they have few employees but very high fixed cost per year.
  • The product sells for $20 per unit, the variable cost is $2 per unit, and the fixed costs are $400,000 per year.
• Corporation B: Chose to keep its automation to a minimum and instead hires human workers to complete most of the production process. As a consequence it has very low fixed cost and can change the number of workers hired (or laid off) to meet increasing or decreasing demand.
  • The product sells for $20 per unit, the variable cost are $12 per unit and the fixed costs are $60,000 per year.

Questions:

1. Which of these corporations will have a lower breakeven point?
2. Which of these corporations is in a better situation to advertise to insure that they reach their breakeven point?
3. If demand is very very high and both firms are operating well beyond their breakeven points, which firm will generate the most profit?

   Given the following:

4. Corporation A:Spends a lot of money automating everything in its production process by renting expensive robotics for $400,000 per year with a long term hard to cancel lease. Consequently they have few employees but very high fixed cost per year.
   • The product sells for $20 per unit, the variable cost is $2 per unit, and the fixed costs are $400,000 per year.
5. Corporation B: Chose to keep its automation to a minimum and instead hires human workers to complete most of the production process. As a consequence it has very low fixed cost and can change the number of workers hired (or laid off) to meet increasing or decreasing demand.
   • The product sells for $20 per unit, the variable cost are $12 per unit and the fixed costs are $60,000 per year.

6. Questions:

7. Which of these corporations will have a lower breakeven point?
8. Which of these corporations is in a better situation to advertise to insure that they reach their breakeven point?
9. If demand is very very high and both firms are operating well beyond their breakeven points, which firm will generate the most profit?