The Relationship of Costs in Decision Making Imagine that you have a friend, Jennifer Jackson, who owns a small family restaurant that opens at night. Jennifer’s restaurant has been open only a few years, and she likes to keep the business small.
The popularity of the restaurant has increased, but Jennifer is hesitant extending service to include lunch hours. She has two young children at home, and keeping the restaurant running only in the evenings has been profitable enough and allowed her to keep a sense of balance in her life. And yet, Jennifer feels she is losing an opportunity to expand that may not be available to her in a few years. For Jennifer’s case, what are the different costs factoring into her decision of whether to extend business hours or not?
To prepare for this paper, consider how to analyze cost concerns, such as opportunity cost, and consider how to determine the cost of alternatives over single and multiple time periods. Also, think about how you would analyze the role of costs in the decision-making process.
Respond to the following:
1-Differentiate opportunity cost, marginal cost, and relevant cost, including supportive and illustrative examples in terms of the purposes for which each cost is used. You can use the scenario of Jennifer’s restaurant to illustrate your examples.
2-Analyze the relationship between marginal benefit and marginal cost, and explain how marginal benefit is measured and how it relates to marginal cost.
3-Beyond the scenario of Jennifer’s restaurant, what other costs must managers address before making decisions? Why?
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