A company that produces pleasure boats has decided to expand one of its lines. Current facilities are insufficient to handle the increased workload, so the company is considering three alternatives, A (new location), B (subcontract), and C (expand existing facilities).
Alternative A would involve substantial fixed costs but relatively low variable costs: fixed costs would be $275,000 per year, and variable costs would be $550 per boat. Subcontracting would involve a cost per boat of $2,550, and expansion would require an annual fixed cost of $55,000 and a variable cost of $1,040 per boat.
Find the range of output for each alternative that would yield the lowest total cost.