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Which of the following is true for firms considering foreign direct investment?
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1. Introduction to Microeconomics
Introduction to Economics
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Which one of the following can be defined as a benefit-cost ratio?
A
The ratio of total benefits received to total costs incurred
B
The sum of total benefits and total costs
C
The difference between total benefits and total costs
D
The ratio of total costs incurred to total benefits received
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Understand that the benefit-cost ratio is a way to compare the total benefits of a project or decision to its total costs, helping to evaluate its overall value or efficiency.
Recall the formula for the benefit-cost ratio, which is given by the ratio of total benefits to total costs: \(\text{Benefit-Cost Ratio} = \frac{\text{Total Benefits}}{\text{Total Costs}}\).
Recognize that this ratio expresses how many units of benefit are received for each unit of cost incurred, making it a useful decision-making tool in microeconomics and project evaluation.
Eliminate options that do not fit this definition: the sum of benefits and costs, the difference between benefits and costs, and the inverse ratio (costs to benefits) are not the benefit-cost ratio.
Conclude that the correct definition of the benefit-cost ratio is the ratio of total benefits received to total costs incurred.
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