Question

According to the cost-benefit principle if a change generates​ $50,000 in gains and​ $45,000 in​ losses, A. it is desirable. B. it is a Pareto improvement. C. the gain is not large enough to justify the change. D. the desirability depends on who gains and who loses.

Answer 1

Answer: Option (A) is correct.

Explanation:

Given that,

Change generates:

Gains =  $50,000

Losses = $45,000

According to the cost-benefit principle, if the benefit-cost ration is greater than 1 then it is desirable.

Benefit-cost ratio = $\frac{Gains}{Losses}$

                             = $\frac{50,000}{45,000}$

                             = 1.11

Therefore, the benefit-cost ratio is greater than 1, so the change is desirable.