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 holds uncertainty. This means that the firm may encounter unexpected changes in demand, input costs, or other market factors that make it beneficial to increase production. This option has value because it can help the firm to adapt to changing conditions and take advantage of new opportunities. Option A is not necessarily true, as future production may not be profitable due to changes in market conditions. Option B is incorrect, as the option to expand production typically involves some investment. Option D is not relevant to the value of the option to expand future production.

The Option for a Firm to Expand Future Production Has