Cost-benefit analysis assumes rational agents do which of the following?

• A. Ignore opportunity costs when evaluating alternatives.
• B. Make decisions based solely on emotions and impulses.
• C. Systematically compare the expected benefits and costs of each available option before making a decision.
• D. Choose the first available option without considering alternatives.

Answer: (C)

Verified step by step guidance

1. Understand that cost-benefit analysis is a decision-making process used in microeconomics to evaluate the desirability of different options by comparing their expected benefits and costs.
2. Recognize that rational agents are assumed to make decisions by systematically weighing the pros and cons of each alternative, rather than ignoring important factors like opportunity costs or acting on impulse.
3. Recall that opportunity cost represents the value of the next best alternative foregone when making a choice, and rational agents consider this in their evaluation.
4. Identify that the correct approach involves comparing the expected benefits and costs of all available options before selecting the one that maximizes net benefit.
5. Conclude that the assumption of rational agents in cost-benefit analysis means they do not choose the first option without consideration, nor do they ignore opportunity costs or rely solely on emotions.