QUESTION 13

In May, Sony purchased a million memory chips, enough for approximately four months of production of Sony's personal computers, at $4 per chip. By July, the market price of chips had fallen to $3, and Sony decided to take advantage of the new lower price and purchased an additional million chips. In deciding which chips to use in its production during the month of July, Sony should

A) use equal numbers of $3 and $4 chips because that will minimize average cost over the long run.

B) use only chips purchased at $4 to get rid of the high cost chips as quickly as possible.

C) use only the chips purchased at $3 because that will lower production costs.

D) use only the chips purchased at $4 because the cost of those chips is sunk.

E) produce using either chip; it doesn't matter.