1. A newly formed firm must decide on a plant location. There are two alternativ

Question

1. A newly formed firm must decide on a plant location. There are two alternatives under consider- PROBLEMS ation: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs than locating near the market, but the owners believe there would be a loss in sales volume because customers tend to favor local sup- pliers. Revenue per unit will be $185 in either case. Using the following information, determine which location would produce the greater profit. Annual fixed costs ($ millions) Variable cost per unit Expected annual demand (units) Omaha $1.2 $36 8,000 Kansas City $1.4 $47 12,000

Explanation / Answer

For omaha

For Kansas city

Therefore,Kansas city produces the greater profit

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