Discussion
Three alternatives cost 5, 8 and 12 million with benefits of 7, 11 and 14 million. The increment from the second to the third has a ratio of
Answer: A
Correct answer: 0.75
\[ \frac{14 - 11}{12 - 8} = \frac{3}{4} = 0.75. \] The four million of extra spending buys only three million of extra benefit, so the third alternative is rejected in favour of the second. Note that the third still has an overall ratio of 14/12, or 1.17, and would look acceptable on that figure alone - which is exactly why increments are examined.
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