What Option Best Summarises Myron Gordon's Resolution of Uncertainty Argument

question 35

Multiple Choice

What option best summarises Myron Gordon's resolution of uncertainty argument?

• A) Investors perceive that a company, by spending all of its current cash flow, is replacing an uncertain dividend flow to shareholders now with a more certain flow in the future.
• B) Investors perceive that a company, by retaining and reinvesting a part of its current cash flow, is replacing a certain dividend flow to shareholders now with an uncertain more distant flow in the future.
• C) Investors perceive that a company, by retaining and reinvesting a part of its current cash flow, is replacing an uncertain dividend flow to shareholders now with a more certain flow in the future.
• D) Investors perceive that a company, by spending all of its current cash flow, is replacing a certain dividend flow to shareholders now with an uncertain more distant flow in the future.

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Definitions:

Short Run

A period in economics during which at least one input is fixed while others are variable.

Average Total Costs

The total cost of production divided by the quantity of output produced. It reflects the per-unit cost of production.

Physical Capital

Tangible assets that are used in the production process, such as machinery, buildings, and equipment.

Short Run

The short run is a period in economics during which at least one input, such as plant size or capital, is fixed, limiting the business's ability to adjust production levels fully.