The volumes at which site C is the most cost effective.

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Chapter 8, Problem 18P

a)

Summary Introduction

To determine: The volumes at which site C is the most cost effective.

b)

Summary Introduction

To determine: The volume that indicates site A is optimal.

c)

Summary Introduction

To determine: The range of volume within which site B is optimal.

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TATA Motors is considering three sites - A, B, and C - at which to locate a factory to build its new-model automobile, the TATA SUV XL500. The goal is to locate at a minimum-cost site, where cost is measured by the annual fixed plus variable cost of production. TATA Motors has gathered the following data: Site Annualized Fixed Cost Variable Cost per Auto Produced A $11,000,000 $2,000 B $20,000,000 $1,400 C $27,000,000 $550 The firm knows it will produce between 0 and 60,000 SUV XL500s at the new plant each year, but, thus far, that is the extent of its knowledge about production plans. Find the range of the production volume for which a)site A is optimal. b)site B is optimal. c)site C is optimal.