The option for a firm to expand future production has value because:
A)Future production will be profitable
B)The option requires no investment today
C)The future holds uncertainty
D)Today's production costs are lower than in the future

Question

Quizplus · Accepted Answer

The option to expand future production has value because the future is uncertain, and having the option to expand allows the firm to adapt to changing market conditions or unexpected developments. Options have value because they offer flexibility and the potential to capture value in uncertain situations. The other choices are not necessarily true - future production may not necessarily be profitable, there may be investment required to expand, and today's production costs may be higher or lower than in the future depending on a variety of factors.

The Option for a Firm to Expand Future Production Has