1. Explain what revenues and costs are relevant when choosing among alternatives.

2. Explain why sunk costs are not considered relevant when choosing among alternatives.

3. A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated dcor that is still in good condition, menus and carpet that need to be replaced anyway and loyal customers. Identify for the management those costs that are relevant to this decision, those costs that are irrelevant, and some qualitative considerations.

4. Under what conditions might a manufacturing firm sell a product for less than its long-term price? Why?

5. If a company has excess capacity what is the relevant cost? What if the company is at capacity?

6. Are fixed costs irrelevant? Why or why not?