Businesses must determine how to use scarce resources to operate productively. This is often a matter of weighing various factors and making a choice based on how each of these factors is
affected.
Read each of the situations below and in each case, consider the following factors:
Opportunity cost
Marginal cost
Marginal revenue/benefit
For each situation:
1. Describe the best course of action with respect to the factors above.
2. Analyze the decision from an economic viewpoint, including:
a. What were the marginal benefits?
b. What were the marginal costs (include not just dollar-costs, but also any opportunity
costs)?
C. How did you compare the marginal costs with the marginal benefits?
d. Were there any sunk costs involved? Did you include them in your analysis?
Case 1: A business that produces small appliances, such as blenders, toasters, and the like, is
considering expanding its blender line. This might require additional space, labor, and
management time devoted to planning and executing the expansion. How would your analysis
change if you operated this business in a country that had a command-and-control type of
economy, as opposed to if you owned it in the U. S.? (10 points)