Final answer:
Option (a), Marginal analysis involves calculating the additional costs and benefits with each unit of activity to find the optimal level of that activity. In the context of land restoration, this means restoring land up to the point where the cost of restoration equals the benefit gained.
Step-by-step explanation:
Understanding Marginal Analysis and Cash Flows
When dealing with marginal analysis, the key is to examine the additional costs and benefits of increasing or decreasing the level of an activity, such as land restoration. To calculate the marginal cost and marginal benefit, you look at how the total cost and total benefits change with each additional unit—in this case, with each additional acre of land restored. You'll compare the change in total costs to the change in quantity to find the marginal cost, and do the same for benefits.
The optimal amount of land to be restored is reached when the marginal benefit equals the marginal cost, meaning that the cost of restoring an additional acre does not exceed the benefit that comes from it. This point ensures that resources are allocated efficiently, and you are not expending more to restore the land than the benefits you would receive from that restoration.
To assess cash flow possibilities in an investment scenario, if given different cash flows, an average might be taken to estimate expected returns. However, this does not directly relate to the restoration cost unless a specific 'restoration factor' is applied which adjusts the average cash flow to account for restoration specificities. Investments can be ranked based on their level of risk and potential return: the lowest probability of loss points to the safest investment, while the highest probability of loss points to the riskiest.