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 2: A business that uses part time employees to provide tutoring services to students is considering expanding during mid-term and final weeks. However, to lure extra tutors, they need to pay higher rates, or shift some of their temps over from other locations (schools in different cities).