If benefits are $1,000 and costs are $800, the benefit-cost ratio is 1.25 to 1.

If benefits are $1,000 and costs are $800, the benefit-cost ratio is 1.25 to 1.

• A. 1.25 to 1
• B. 1.00 to 1
• C. 0.80 to 1
• D. 2.0 to 1

Answer: (A)

The main idea is that the benefit-cost ratio compares total benefits to total costs. It’s found by dividing benefits by costs. Here, benefits are $1,000 and costs are $800, so 1000 ÷ 800 = 1.25. This is written as 1.25 to 1, meaning for every dollar spent, you get $1.25 in benefits. Since the ratio is greater than 1, the project is economically favorable. Why the other numbers don’t fit: a ratio of 1.00 to 1 would mean benefits equal costs; a ratio of 0.80 to 1 means costs exceed benefits; a ratio of 2.0 to 1 would mean benefits are double the costs (e.g., $1,600 in benefits for $800 in costs).

The main idea is that the benefit-cost ratio compares total benefits to total costs. It’s found by dividing benefits by costs.

Here, benefits are $1,000 and costs are $800, so 1000 ÷ 800 = 1.25. This is written as 1.25 to 1, meaning for every dollar spent, you get $1.25 in benefits. Since the ratio is greater than 1, the project is economically favorable.

Why the other numbers don’t fit: a ratio of 1.00 to 1 would mean benefits equal costs; a ratio of 0.80 to 1 means costs exceed benefits; a ratio of 2.0 to 1 would mean benefits are double the costs (e.g., $1,600 in benefits for $800 in costs).