Sensitivity analysis is used by a firm to:
A) analyze the impact of a change in the price of the good on the demand for the good.
B) examine the static effects of an economic decision on the firm's profitability.
C) analyze the social costs and benefits of an economic decision.
D) examine the opportunity costs of an economic decision.
E) examine how an optimal decision is affected if key economic facts vary.

Question

Quizplus · Accepted Answer

Sensitivity analysis is used to examine how an optimal decision is affected if key economic facts vary. It is helpful in identifying the level of uncertainty in a decision or a forecast and can help a firm make better-informed decisions. Therefore, option E is the correct answer. Options A, B, C, and D are incorrect as these do not accurately define sensitivity analysis.

Sensitivity Analysis Is Used by a Firm To