Using the Real Options Approach,if the Cost of Future Investments

question 10

Multiple Choice

Using the real options approach,if the cost of future investments to capitalize on the R&D program is less than the returns from this investment,then

• A) the program should be abandoned.
• B) the program should be pursued.
• C) further calculations should be made.
• D) the exercise price should be determined.

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Definitions:

Marginal Revenue

The additional income that a firm receives from selling one more unit of a good or service.

Average Revenue

The average amount of money received by a firm per unit of output sold, calculated by dividing the total revenue by the number of units sold.

Marginal Cost

The uptick in price resulting from the manufacture of an extra unit of a good or service.

Monopoly Firm

A company that is the sole provider of a product or service in a market, facing no competition.