Data Corp Is Considering Which of 4 Different Projects to Undertake

question 69

Multiple Choice

Data Corp. is considering which of 4 different projects to undertake in order to maximize its net present value (NPV) . Define X_i as a binary variable that equals 1 if project i is undertaken and 0 otherwise, for i = 1, 2, 3, 4. The NPV and required capital (in millions) for each project are listed below. Which of the following represents the constraint stating that project 2 can be undertaken only if project 3 is undertaken?

• A) X₂ + X₃ ≤ 1
• B) X₂ - X₃ ≤ 0
• C) X₃ - X₂ ≤ 0
• D) X₂ - X₃ ≤ 1
• E) X₃ - X₂ ≤ 1

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Definitions:

Cost Function

An equation that calculates the total cost of producing goods or services as a function of the quantity of output produced.

Production Function

A mathematical relation that expresses the relationship between inputs used in production and the output produced.

Minimizing Unit Costs

The process of reducing the cost per unit of production in order to achieve greater efficiency and profitability.

Price Ratio

The proportional relationship between the prices of two goods, indicating how many units of one good can be exchanged for one unit of another good.