Economics homework question...HELP!

[Squatch]

I just can't seem to get this problem. It's really got me stumped, so I would appreciate some help!

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A company currently uses a piece of equipment to produce widgets.

Currently, the lease for this equipment is $10,000, fixed costs are $1,000, and variable costs are $100/unit.

They are thinking about going to a new, more advanced piece of equipment that would have a lease of $15,000, fixed costs of $1,000, and variable costs of $75/unit.

What's the break even point for this new acquisition?

[StrongBad]

1. How is the break even point to be expressed?

In price/quantity/time/etc.?

I'll try and help you out but don't know how the answer is to be expressed.

[Squatch]

3. Units of production (qty)

BTW, I appreciate the help.

[PRETZEL]

11. doesn't break even have something to do with the number of units

necessary to cover the fixed costs and variable costs?

In terms of units of production wouldn't it be fixed costs divided by variable costs?

[mzteris]

2. I've never taken an econ class, but

wouldn't it be 200 units?

[Ptah]

4. I'm guessing 200 units

$5,000/$25= 200

:shrug:

[Rabrrrrrr]

5. Seems to me you'd have to know how many units are made per unit of time for the lease

For example, if that's a yearly lease, then you need to know (I think) how many widgets per year are made.

You could use generic time, but you'd still need to know units per that generic time.

But then, my economics professor was insane, would talk to himself during lectures, and often wrote test questions missing either verbs or nouns or that would just be sentence fragments (e.g., "True or false: the ratio of income generated versus expenses")

[Squatch]

6. Exactly, but I think that for the 2 scenarios, if we hold production rates as constant

ie. The new advanced machine only produces units with lower variable costs, but not necessarily faster than the older machine.

[StrongBad]

7. Then I would think the answer is $200 as well

Reasoning:

If production is held constant the only thing changing is a $5000/month lease increase combined with a reduction in marginal cost by $25. So essentially the company is making an additional $25 per unit with this new machine's increased productivity. So just divide 5000 by 25 and the answer should be an additional 200 units from what they produce now.

[Squatch]

8. OK, that looks like a good solution. Thanks a ton!

[StrongBad]

9. No prob

I got my BA in economics so it was nice to see if any of what I learned is still in my mind.

[StrongBad]

14. D'oh. Just realized I said $200. That's obviously not right.

It should be units!

[Rabrrrrrr]

16. Yes. And I realize now they are looking for a breakeven point for units, not for time.

I was stuck in time mode, for no particularly good reason.

So, yes, after 200 units, it breaks even for whatever generic amount of time the lease is for.

[flvegan]

10. Make up the $5k with the per unit $25 advantage.

Divide $5k by $25 and you have a number of units.

That number of units is your break even point.

[NewJeffCT]

13. ding ding ding - we have a winner

the only difference is the $5,000 lease cost and the $25/per unit savings.

[applegrove]

12. Hell I majored in economics 20 years ago and I have no idea what you are talking about.

LOL!

[Parche]

15. Breakeven

Did you include the India outsourcing..........:hi:

[Yavin4]

17. Answer: When It's Outsourced To China

U.S. doesn't make widgets any more. All the widget factory workers have been re-trained to be WalMart greeters.