An Example of a Real Option Is

question 21

Multiple Choice

An example of a real option is

• A)the option to make follow-on investments.
• B)the option to abandon a project.
• C)the option to wait before investing.
• D)All of the options are correct.

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Definitions:

Marginal Social Benefit

The additional benefit to society as a whole from the consumption of one more unit of a good or service.

Marginal Social Cost

The additional cost incurred by society as a whole due to producing one more unit of a good or service.

Pollution

The contamination of the natural environment, leading to adverse effects on ecosystems and human health.

Marginal Social Cost

The extra expense society incurs from the production of an additional unit of a good or service.