Marginal Cost

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Abstract

There are a lot of decisions that have to be made when running a business. One of those decisions is when to buy new machines or equipment or upgrade the machines or equipment that the business already has. Using analysis of the needs of the business and how the new equipment will help the business to function and the cost of the product will determine what the managers of the business decides.  

Marginal costs are change in total costs divided by change in output. Marginal revenue is the change in total revenue divided by change in output. Increase in fixed costs means that when the fixed costs cannot be changed it is the short run and when the fixed costs change it is the long run. The second questions that I chose to answer was the following: A managerial decision I recently had to make which required a complete review of the economic considerations involved whether to transition into a digital format with our portable x-ray machines by performing transformation upgrades to both existing analog units or to trade them in and use their value to offset the total price incurred by the purchase of new units.

Value Considerations
Current Value of analog systems:
Flat value: $12,000 ea
Intrinsic value:
Exams (units)/day: 8.5
Average revenue/unit: $65.00
$553/day X 365 = $201845/year
Cost Consideration #1:
The cost to upgrade (2) GE AMX 4 Plus Portable X-ray Units is $88,000 each. The upgrade utilizes the exiting units transport mechanism, battery pack and charging components, the current x-ray generator and x-ray tube. When the reconditioning is complete, each unit will perform the same task as a new digital unit manufactured by GE. However, there is no warranty on the upgraded system outside of the actual work performed. Therefore, any performance issue that was present prior to the upgrade would most likely still be present after the upgrade and would not be serviced as part of the upgrade. The analog systems in their...
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