Suppose That the Government Is Trying to Decide Between Allocating

question 264

Multiple Choice

Suppose that the government is trying to decide between allocating its resources to build more dams or to build more freeways. In terms of forgone dams, as more freeways are constructed, the marginal benefit of additional freeways ________ and the marginal cost of additional freeways ________.

• A) increases; increases
• B) increases; decreases
• C) decreases; increases
• D) decreases; decreases

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Definitions:

Legal and Administrative Expenses

Costs associated with the legal operation of a business and general administrative tasks, including legal fees, licensing, and managerial salaries.

Bankruptcy

is a legal process through which individuals or businesses unable to meet their financial obligations can seek relief from some or all of their debts.

Weighted Average Cost of Capital

A calculation of a firm's cost of capital, wherein each category of capital is proportionally weighted.

Interest Tax Shield

A deduction that companies can take from their taxable income for the interest payments they have made on their debt, effectively reducing their taxable income.