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Limousine rental business from scratch

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Darian and Ivan have been friends since college. They started a limousine rental business from scratch. They are now contemplating opening their business in Baltimore a new city for their business. They have crunched the numbers and discover it would mean adding $2 million more in expenses, and their profit would increase by $250,000 each year for the next 5 years (all other things equal). Darian and Ivan decide

A to not open in a new city because the marginal costs prove to be too high.

B to take on the new location of Baltimore because the expected marginal benefit is greater than the estimated marginal cost.

C to open in a second city because the marginal cost of the new location is low compared to other similar projects.

In order to satisfy as many wants as possible, it is necessary to achieve productive efficiency

A because otherwise output may go to where it is less valued.

B because producing more of one thing also leads to producing more of another.

C because otherwise resources are idle.

The production possibilities model shows an inverse relationship between the amount of one thing and the amount of something else that can be produced because

A the opportunity cost of producing more of something will fall.

B production of different types will compete for limited resources.

C of diminishing returns.

Reference no: EM132219899

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