A city is considering options for recycling waste. Currently, the city pays $65 per ton to a recycling company to collects recyclable waste. However, due to a Green Initiative, most citizens are separating the recyclable waste and the amount of recyclable waste has increased recently. The city is considering to build their own recycling facility. The fixed cost of running the recycling facility will be $200,000 per year. However, the city can earn a profit after selling the recycled material. It is estimated that the city can earn $15 per ton of collected recyclable waste. (In other words, variable cost is - $15).
What is the break-even point? Show your calculations.
If the forecasted amount of recyclable waste is 3,000 tons per year, what should the city do? Briefly explain your choice.
The current recycling company has offered another option: Instead of charging $65 per ton, they would charge $30 per ton if the city agrees to pay a fixed price (whether any recyclable waste is collected or not) of $50,000 per year. What should the city do? Keep the current option ($65 per ton), build a new facility, or choose new outsourcing option? Provide reasoning for your choice.