The Option to Abandon a Project Investing in Real Assets

question 27

Multiple Choice

The option to abandon a project investing in real assets can be considered to have an exercise price equal to the:

• A) historical cost of the asset.
• B) resale value of the asset at abandonment.
• C) foregone revenues anticipated from the project.
• D) foregone interest on the bonds used to finance the real assets.

---

Definitions:

Long Run

A period in economics during which all factors of production and costs are variable, and firms can adjust all inputs.

Efficient Output

The level of production that maximizes a firm's profits while minimizing its costs, often associated with where marginal cost equals marginal revenue.

Lowest Price

The minimum cost at which a product or service can be bought, often sought after in competitive markets.

Total Profits

The final financial gain from a business operation after subtracting all expenses, taxes, and costs from total revenues.