Which of the following is a step in conducting a cost-benefit analysis?

• A. Ignoring opportunity costs
• B. Comparing the total expected costs and total expected benefits
• C. Identifying all relevant costs and benefits
• D. Making a decision based solely on sunk costs

Answer: (C)

Verified step by step guidance

1. Understand that a cost-benefit analysis involves comparing the total expected costs and total expected benefits of a decision or project.
2. Identify all relevant costs and benefits associated with the decision, including both direct and indirect effects.
3. Include opportunity costs in the analysis, as these represent the value of the next best alternative foregone.
4. Exclude sunk costs from the decision-making process because they are past costs that cannot be recovered and should not affect future decisions.
5. After listing and quantifying all relevant costs and benefits, compare their totals to determine whether the benefits outweigh the costs, guiding the decision.