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CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production

A business economist at an Indian automobile firm studies how the firm should allocate its limited capital among competing plant upgrades to get the best return. Which feature of business economics does this activity best illustrate?

The activity illustrates applying economic theory to business decision-making under scarcity. Business economics uses concepts like opportunity cost and marginal analysis to help firms allocate limited resources, such as capital, among competing uses. Bookkeeping, national income study and company law do not describe this allocation problem.

  1. AApplying economic theory to business decision-making under scarcityCorrect
  2. BRecording business transactions in the books of account
  3. CStudying only the national income of the country
  4. DFraming laws that regulate company incorporation

Explanation

Business economics applies economic concepts such as scarcity, opportunity cost and marginal analysis to practical business problems. Allocating limited capital among alternatives is exactly this. Recording transactions is accounting, and national income and company laws are outside the activity described.

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