Question

Suppose you have the opportunity to purchase either of two drugstores. One is the only drugstore in a small town and the building inspector there has guaranteed that no additional drugstores will be permitted. The second is a drugstore in a large city where there are hundreds of competitors. Which would you buy? Why?

Answer 1

• if we go through the scenario we can observe that there are two possibilities.

first scenario...there is only a single drug store in the small town For an upcoming sole trader he needs to look for some of the following.

1.The capital which he is going to invest for purchasing drug store

2.The market impact where he is investing his money

if he invests money in small town and if the market of that town is very much small compared to large city then it becomes weird to invest in such small town .it takes long time as you are the only one enterpreneur in the small town

you may loose the oppurtunity cost as you have lost the oppurtunity to invest in larger market.

to over come this you need to know the payback period of your investment and the future value of your money ,.

if you get better result in the first case then you can opt for it .

i can even say the formula to caluculate   all those

PAYBACK PERIOD = TOTAL COST OF INVESTMENT / EXPECT CASH FLOWS

TOTAL COST = FIXED COST PLUS VARIABLE COST

there are even more type of methods to caluculate all these