The Costs and Revenues Associated with Two Alternatives Are Listed

question 23

Multiple Choice

The costs and revenues associated with two alternatives are listed below: $\begin{array}{lrc}&\text {Alternative 1}&\text {Alternative 2}\\\text { Projected revenue } & \$ 100,000& \$125,000 \\\text { Unit-level costs } & 20,000 & 30,000 \\\text { Batch-level costs } &20,000 & 25,000 \\\text { Croduct-level costs } &15,000 &15,000 \\\text { Tacility-level costs } &10,000 & 10,000\end{array}$ Which alternative should be selected based on this information?

• A) Alternative 2 because it has a higher profit.
• B) Alternative 2 because it has the same product- and facility-level costs.
• C) Alternative 1 because it has fewer unit-level costs.
• D) Alternative 1 because it has a higher profit.

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Definitions:

Loss Aversion

A principle in behavioral economics suggesting that individuals are more sensitive to losses than to equivalent gains, leading to risk-averse decision-making.

Schemas

Mental structures that organize our knowledge and assumptions about something and are used for interpreting and processing information.

Problem Solving

The process of identifying a problem, developing possible solution paths, and taking the appropriate course of action.

Heuristics

Simple, efficient rules, either mental or computational, that help in making decisions, forming judgments, or solving problems.