Question

Demonstrate how to make a decision by analyzing the costs and benefits of the decision process.

Answer 1

There are two categories of costs involved and 2 categories of benefits involved.

(1) Private (Internal) costs and external costs
(2) Private (Internal) benefits and external benefits

You have to put a value on the private costs you have incurred, by adding all the fixed and variable costs.
Then you have to put a value on all the external costs (such as pollution in the environment) and add the two categorial cost groups together to achieve social costs.

You have to put a value on all the private benefits you have received, e.g., by looking at the profits, sales and revenues of the business.
Then you have to put a value on all the external benefits (such as how many people's lives you have saved by providing a cure to a virus) and add the two categorial benefit groups together to achieve social benefits.

social costs - social benefits = the answer to whether or not a decision should be made.

If social costs are negative, and social benefits are more, businesses are more likely to go through with a decision plan than if social costs outweighed social benefits.


If total cost