Scenario: a Firm Wants to Set Up a Factory

question 12

Multiple Choice

Scenario: A firm wants to set up a factory. It has four different options. The rent of the factory in each of the four different locations and the time taken to transport the product from each location to the market is shown in the table below. The opportunity cost of time is $10 per hour.

-Refer to the scenario above.For which of the following choices is the marginal total cost the lowest?

• A) Choosing factory Close over factory Far
• B) Choosing factory Far over factory Very Far
• C) Choosing factory Very Close over factory Close
• D) Choosing factory Close over factory Very Far

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Definitions:

Prepaid Interest

Interest payments made in advance of their due date, typically associated with the initial costs of obtaining a mortgage.

Recurring Cost

Expenses that occur at regular intervals, such as monthly rent or annual subscriptions.

Back-end Ratio

The back-end ratio measures a person's total debt payments as a percentage of their income, commonly used by lenders to assess borrowing capacity.

Pre-approved

An initial approval indicating a customer may qualify for certain loans or credit cards, usually based on a preliminary credit information review.