5. Individual Problems
4-5 Your insurance firm processes claims through its two facilities: facility A and facility B. Each month, facility A handles 9,000 claims and incurs in $162,000 fixed costs and $180,000 in variable costs. Each month, facility B handles 11,000 and incurs $95,000 in fixed costs and $143,000 in variable costs.
Hint: Be careful not to commit the sunk-cost fallacy in your analysis.
If you anticipate a moderate decrease in the number of claims, you should lay off workers in facility A or B in order to decrease costs.
Average variable cost in A=180000/9000=20
Average variable cost in B=143000/11000=13
Since average variable cost is lower in Facility B then workers should be laid off from facility A.
Firm should Layoff from A in order to reduce/decrease cost
5. Individual Problems 4-5 Your insurance firm processes claims through its two facilities: facility A and...
You work for an insurance company that processes claims through both a newer, larger high-tech facility and an older, smaller low-tech facility. Each month, the high-tech facility is working at capacity handling 10,000 claims. It incurs $100,000 in fixed costs and $100,000 in variable costs (which is almost entirely labor costs). Each month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs (which is almost entirely labor costs). If you anticipate that in...
You work for an insurance company that processes claims through both a newer, larger high-tech facility and an older, smaller low-tech facility. Each month, the high-tech facility is working at capacity handling 10,000 claims. It incurs $100,000 in fixed costs and $100,000 in variable costs (which is almost entirely labor costs). Each month, the low-tech facility handles 2,000 claims, incurs $16,000 in fixed costs and $24,000 in variable costs (which is almost entirely labor costs). If you anticipate that in...