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Use the Information for the Question(s)below

question 24

Multiple Choice

Use the information for the question(s) below.
You own a small manufacturing plant that currently generates revenues of $2 million per year.Next year,based upon a decision on a long-term government contract,your revenues will either increase by 20% or decrease by 25%,with equal probability,and stay at that level as long as you operate the plant.Other costs run $1.6 million per year.You can sell the plant at any time to a large conglomerate for $5 million and your cost of capital is 10%.
-Assume that it will cost $1 million to shut down the plant,but you are able to sell the plant for $5 million at any time.The value of the option to sell the plant will be closest to:

Understand the concept of market failure and its implications for resource allocation.

Distinguish between private and public goods, including their definitions and examples.

Comprehend the reasons for regulatory measures in markets, specifically in sectors with significant externalities or information asymmetry.

Uncover the rationale and economic impact of licensing in professions with high stakes for consumer welfare.

Definitions:

Camouflage

A method used by animals and plants to blend with their surroundings to hide from predators or prey.

Stabilizing Natural Selection

A form of natural selection that favors the average individuals in a population, thereby maintaining the population's genetic variance over time.

Genetic Expressions

The processes through which the information encoded in genes is used to produce functional products, like proteins.

Average

A numerical value representing the sum of a group of values divided by the number of values in the group, commonly used to describe the central tendency of a data set.