When External Costs Are Present in a Market

question 100

Multiple Choice

When external costs are present in a market,

• A) less of the good will be produced than the amount consistent with economic efficiency.
• B) more of the good will be produced than the amount consistent with economic efficiency.
• C) the amount of the good produced will be equal to the amount consistent with economic efficiency.
• D) corresponding external benefits are always generated.

Understand the basic concepts and definitions of linear programming, including constraints, objective function, and feasible region.

Formulate linear programming (LP) constraints from worded problems.

Explain the relationship between constraints and the feasible region in a linear programming problem.

Identify and describe methods for conducting sensitivity analysis.

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Definitions:

Risk Premium

The additional return expected from an investment for taking on a higher level of risk.

Holding Period

Refers to the duration of time an investment is held by an investor, impacting the tax treatment of any capital gains.

Reward-to-volatility Ratio

A measure used to determine the amount of return an investment provides relative to its risk, with higher ratios indicating better performance per unit of risk.

Capital Allocation Line

A graphical representation in finance showing risk-versus-return profiles of different portfolios, emphasizing the efficient diversification of assets.