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A firm currently buys an important input at a cost of $41 per input unit. Each...

A firm currently buys an important input at a cost of $41 per input unit. Each finished good unit requires 1 input unit.

Alternatively, the firm could use 1,500 square feet of factory space to make the input (those 1,500 square feet of factory space are currently leased to another firm for $87,950 per period). To make the input, the firm would need to acquire equipment at a cost of $95,554 per period and labor at a cost of $57,879 per period.

Making the product in-house will probably increase the quality of the product, thus increasing the sales price by 6%. Currently, each finished goods unit is sold for $179, and the firm produces and sells 5,000 of those finished goods units per period.

How much more (or less) profitable is it to make than to buy?

(Your answer will be a negative number if it is less profitable to buy than to make.)

Round your final answer to whole dollars. Enter your answer as a whole number without dollar signs, commas, or decimals.

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Answer #1

Additioanl profit of make = Additional Sales revenue + Cost of buying - Lease revenue lost - Cost of making

= 5000*179*6% + 41*5000 - 87,950 - 95,554 - 57,879

=$17,317

Hence, more profitable to make

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