PROBLEM 4. Relax Company and Recline Company both make rocking chairs'. They have the same production capacity, but Relax is more automated than Recline. At an output of 1,000 chairs per year, the two companies have the following costs:

RelaxRecline

Fixed costs P400,000P 200,000

Variable costs at P100 per chair 100,000

Variable costs at P300 per chair 300,000

Total cost P 500,000P500,000

REQUIREMENT:

Assuming that both companies sell chairs for P700 each and that there are no other costs or expenses for the two firms, which company will lose the least money if production and sales fall to 850 chairs per year? Show proof to your answer.