Main content

AP®︎/College Microeconomics

Course: AP®︎/College Microeconomics > Unit 1

Lesson 5: Cost-benefit analysis

Cost-benefit analysis

AP.MICRO: CBA‑1 (EU), CBA‑1.A (LO), CBA‑1.A.1 (EK), CBA‑1.A.2 (EK), CBA‑1.B (LO), CBA‑1.B.1 (EK), CBA‑1.B.2 (EK)

Le wants to open a Cajun-Vietnamese fusion restaurant. He currently works as a software engineer and earns dollar sign, 90, comma, 000 per year. He estimates the operating costs for the restaurant, such as the cost of labor and materials, at dollar sign, 60, comma, 000. He also estimates he will have dollar sign, 100, comma, 000 in revenues from operating the restaurant.

Which of the following statements is true based on Le’s estimates?

(Choice A)
As long as his revenues are higher than dollar sign, 60, comma, 000, it is rational to open this restaurant.
(Choice B)
He should subtract his explicit costs from his foregone earnings when comparing his revenues to his costs.
(Choice C)
He should consider both his foregone earnings and the explicit costs when comparing his revenues to costs.
(Choice D)
He should only consider his foregone earnings when comparing his revenues to costs.
(Choice E)
He should only consider the explicit costs of operating the restaurant when comparing his revenues to costs.

Stuck?

AP®︎/College Microeconomics

Course: AP®︎/College Microeconomics > Unit 1

Problem