The standard deviations (in thousands of dollars) for building a small and large complex are 535 and 976, respectively. Based on the resulting coefficients of variation (CV), which of the following statements would be true?
A) The CV of building a large complex is less than that of building a small complex.
B) The CV of building a small complex is less than that of building a large complex.
C) The risk averse action would be to build a large complex.
D) The CV of building a large complex is less than that of building a small complex and the risk averse action would be to build a large complex.
E) The CV of building a small complex is less than that of building a large complex and the risk averse action would be to build a large complex.

Question

Quizplus · Accepted Answer

The coefficient of variation (CV) is calculated by dividing the standard deviation by the mean. Since we don't have information about the means of building a small and large complex, we cannot compare their CVs directly. However, we know that a lower CV indicates less variability relative to the mean. Therefore, the risk averse action would be to build a small complex, which has a lower CV, indicating less variability in costs relative to the mean. Therefore, statement B is true. Statements A, C, D, and E are all false.

The Standard Deviations (In Thousands of Dollars) for Building a Small