A small producer of machine tools wants to move to a larger building, and has identified two alternatives. Location A has annual fixed costs of $800,000 and variable costs of $14,000 per unit; location B has annual fixed costs of $920,000 and variable costs of $13,000 per unit. The finished items
sell for $17,000 each.
a. At what volume of output would the two locations have the same total cost?
b. For what range of output would location A be superior? For what range would B be superior?