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If the Marginal Total Cost When Moving from Option a to Option

question 23

Essay

If the marginal total cost when moving from Option A to Option B is negative and the marginal total cost when moving from Option B to Option A is positive,which of the two options is better? What is the underlying principle behind the decision?


Definitions:

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Quantitative Decision Rule

An analytical procedure or guideline used to make decisions based on numerical data and mathematical calculations.

Capital Expenditure

A financial outlay made by a company to acquire, maintain, or improve physical assets such as property, plants, and equipment.

Cash Budgeting

The process of estimating future cash inflows and outflows to determine a company's short-term financial health and liquidity.

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