Which of the Following Represent Limitations of Real Options

question 65

Multiple Choice

Which of the following represent limitations of real options?

• A) Key assumptions often are very difficult to quantify, especially volatility
• B) Project delays may incur significant opportunity costs
• C) Options often are not independent; therefore, selecting one option may foreclose other options
• D) Often requires complex modeling
• E) All of the above

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Definitions:

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of output.

Average Variable Cost

The total variable costs divided by the quantity of output produced, representing the variable cost per unit.

Average Total Cost

The total cost of production divided by the quantity of output produced, encompassing both fixed and variable costs.

Total Revenue

The total income a firm receives from selling its products; calculated as the quantity sold multiplied by the price per unit.