Question

Let's now consider plant expansion. How about operating expenses for the new plant, which are comparatively lower than the old plant? This should be considered:

A) Irrelevant
B) An incremental benefit
C) An incremental cost
D) Cost savings analysis

Answer 1

Operating expenses that are lower in a new plant than an old one are considered an incremental benefit. Marginal costs compared to marginal benefits determine resource allocation efficiency. In a cost/benefit analysis, lower operating expenses are weighed against other factors to inform a plant expansion decision.

Step-by-step explanation:

When considering plant expansion, operating expenses for the new plant, which are comparatively lower than those of the old plant, should be considered as an incremental benefit. Marginal analysis plays a critical role in this scenario. Incremental costs and benefits are central to marginal analysis.

As a baker may invest earnings to grow their business capacity through additional ovens or a new bakery, leading to exponential growth, a plant can do the same by investing in structures that enhance resource acquisition. However, investments must outpace maintenance costs to ensure sustainable growth.