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

Answer: (A)

Verified step by step guidance

1. 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.
2. Recall the formula for the benefit-cost ratio, which is given by the ratio of total benefits to total costs: \(\text{Benefit-Cost Ratio} = \frac{\text{Total Benefits}}{\text{Total Costs}}\).
3. 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.
4. 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.
5. Conclude that the correct definition of the benefit-cost ratio is the ratio of total benefits received to total costs incurred.