Production Technology Investment Decision
A startup is planning to manufacture a new electronic gadget and is evaluating two production technologies. The company's goal is to choose the technology that results in the lowest average cost per unit at their projected sales volume.
- Technology A: Requires a large, automated factory. The total fixed costs would be $500,000 per year, but the constant marginal cost to produce each unit would be only $10.
- Technology B: Uses a more manual assembly process. The total fixed costs would be only $50,000 per year, but the constant marginal cost to produce each unit would be $30.
The marketing team projects that the company can sell 25,000 units in the first year. Based on minimizing the average cost per unit, which technology should the company choose? Justify your answer with calculations.
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