Suppose a Firm's CFO Thinks That an Externality Is Present

question 52

True/False

Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision⎯estimates of its effect would really just be guesses.In this case, the externality should be ignored⎯i.e., not considered at all⎯because if it were considered it would make the analysis appear more precise than it really is.

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Definitions:

Long-Run Equilibrium

A state in a market where all resources are optimally allocated and economic forces are balanced, with no tendency for change until external conditions change.

Perfect Competition

A market structure characterized by many sellers and buyers, homogeneous products, and free entry and exit, resulting in price takers.

Economic Profit

The difference between a business's total revenue and its total costs, including both explicit and implicit costs.

Long-Run Supply Curve

A graphical representation showing the relationship between price and quantity supplied over time, factoring in adjustments in factors of production.