PROBLEM#1: Assume two firms, Aand B, produce and sell widgets. Firm A uses a highly…

PROBLEM#1:

Assume two firms, Aand B, produce and sell widgets. Firm A uses a highly automatedproduction process with robotic machines, whereas firm B assemblesthewidgets using primarily semi-skilled labor. Highly automatedfirm A has fixed costs of Rs. 35,000 per year and variable costs ofonly Rs. 1.00 per unit, whereaslabor-intensive firm B has fixedcosts of only Rs. 15,000 per year, but its variable cost per unitis much higher at Rs. 3.00 per unit. Both firms produce andsell10,000 widgets per year at a price of Rs. 5.00 perwidget.

REQUIRED:

(i) Whichfirm has a higher amount of operating leverage andwhy?

(ii) Howwill you interpret the breakeven point of the firm with highoperating leverage?

"Is this question part of your assignment? We can help"

ORDER NOW