Businesses must determine how to use scarce resources to operate productively. It is often a matter of weighing various factors and making a choice based on how each of those are 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 (not just dollar-costs, but include 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, etc. is considering expanding its blender line. It 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, vs if you owned it in the U.S.?