A finance manager has to select one of the four different suppliers of raw materials. The total cost functions under the four options are given below. Assume the quality of the raw material to be the same, which of the following is preferred by the finance manager?

a. y = 550550+4.674.67X

b. y = 550550+4.954.95X

c. y=550550+5.425.42X

d. y = 550550+4.444.44X

Selection from four different suppliers

Total cost function:

d. y = 550550+4.444.44X

Explanation:

This is the least among all the other three cost functions when x is applied to the function. The other functions will have higher values of x than option d.

The finance manager is always interested in minimizing costs. Since, the quality of the raw materials are the same, it makes financial and economic sense for the finance manager to choose option d with the lowest total cost function.

We decided the choice based on the dependent values of the functions with constant intercept value of 550550.

The intercept (often labeled the constant) is the expected mean value of Y when all X=0.