If Individuals Are Rational, They Should Choose Actions That Yield

question 30

Multiple Choice

If individuals are rational, they should choose actions that yield the:

• A)largest total benefits.
• B)smallest total costs.
• C)smallest economic surplus.
• D)largest economic surplus.

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Definitions:

Valuation Allowance

A reserve created to account for future tax benefits that may not be realized, reducing the reported value of deferred tax assets to an amount that is more likely to be realized.

Deferred Tax Asset

This asset reflects the future tax benefits that a company is entitled to, due to deductible temporary differences and carryforwards.

Operating Loss

A loss that occurs when a company's operating expenses exceed its revenues.

Carryback Provision

A tax provision allowing companies to apply a current year's net operating losses to past years' profits for potential tax refunds, offsetting taxable income in profitable years.