Thursday, 26 June 2014

A brewery is considering two potential production investments:

A brewery is considering two potential production investments:
Option A costs an initial $2 million and will involve constant marginal cost of $5
option B costs an initial $4 million and will involve constant marginal cost of $3
In order to make the calculations simple, assume the annual capiital cost is 10% of the total investment.  At what production wuantity per year would the brewery be indifferent between these two investment opportunities?

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