A manufacturing firm is considering two locations for a plant to produce a new product. The two locations have fixed and variable costs as follows: Location FC (annual) VC (per unit) Atlanta $ 80,000 $ 20 Phoenix $ 140,000 $ 16 What would be the total annual costs at the point of indifference

The point of indifference is a point where both the options will have equal annual cost and the firm will be indifferent in choosing both the options. To calculate the total cost at the point of indifference, we first need to equate both the cost equations to calculate the point of indifference in units and then calculate the cost at that point.

Let x be the number of units.

The total cost for Atlanta = 20x + 80000

The total cost for Phoenix = 16x + 140000

The point of indifference in units will be,

20x + 80000 = 16x + 140000

20x - 16x = 140000 - 80000

4x = 60000

x = 60000 / 4

x = 15000 units

The total cost at point of indifference will be = 20*(15000) + 80000 = $38000

This can be verified as = 16 * (15000) + 140000 = $380000