Variable Costs

question 34

Multiple Choice

Variable costs:

• A)change as the quantity of output changes.
• B)are zero when production is zero.
• C)are exemplified by direct labor and raw materials.
• D)All of the above.
• E)None of the above.

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Definitions:

Capital Asset Pricing Model

A theoretical framework used to determine the expected return on an investment by accounting for its inherent risk, usually represented as the risk-free rate plus the risk premium.

Risk Premium

Maximum amount of money that a risk-averse individual will pay to avoid taking a risk.

Expected Return

The predicted average of possible returns for an investment, accounting for the probability of each outcome and its associated return.

Risk-Adjusted Discount Rate

A discount rate that adjusts for the risk of the cash flows, giving a more accurate present value estimate.