Audi Motors is considering three sites-A, B, and C- at which to locate a factory to build its new-model automobile, the Audi SUV XL500.
The goal is to locate at a minimum-cost site, where cost is measured by the annual fixed plus variable costs of production. Audi Motors has gathered the following data:
Annualized Fixed Variable Cost per Site Cost Auto Produced A $10,000,000 $2,500 B $20,000,000 $2,000 C $25,000,000 $1,000
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.
a) For what values of volume, V, of production, if any, is site C a recommended site?
b) What volume indicates site A is optimal?
c) Over what range of volume is site B optimal? Why?