The Yum Yum Bubble Gum Company rents space in a warehouse to store its inventory. The owner of the warehouse just lowered the rent he charges the Yum Yum Bubble Gum Company. Everything else equal, the rent decrease is likely to ________ Yum Yum's optimal level of inventory.

Question

Quizplus · Accepted Answer

When the rent for warehouse space decreases, it becomes cheaper for the Yum Yum Bubble Gum Company to store its inventory. This means that it can maintain higher levels of inventory without incurring as much cost. As a result, it is likely that the optimal level of inventory for the company will increase.

The Yum Yum Bubble Gum Company Rents Space in a Warehouse