00:01
So the easiest way that i always find to address these questions is to break it up, right, and to see what they can do.
00:06
So the firm has two options, right? they can produce themselves or they can buy it from the outside supplier, right? so if they produce it themselves, we're told what the costs are, right? the costs are going to be 600k plus 900k, right? so it's 1 .5 million.
00:30
They have to pay 600 ,000 a variable cost.
00:33
They have to pay 900 ,000 fixed costs.
00:35
Another supplier can buy them for 450 a unit.
00:40
So since we're talking about 100 ,000 units, we would have to buy them at four or five times 100 ,000 units, right? so that would be 450k.
00:53
And we still have to pay the fixed costs, right? but we don't have to pay the variable.
00:59
The fixed costs have to be paid in each situation, right? because you're on the hook for the fixed costs regardless.
01:07
But you don't have to pay the variable costs, right? we are buying the product so we're not with our own quantity produced is going to be zero.
01:13
So we don't have to pay any variable costs.
01:15
But since we're not using our facilities that presumably reflect our fixed costs, we can sort of lease them out for a little bit.
01:21
So we can make some money back on our fixed cost by leasing them out if we don't produce...