Which Firm Provides the Better Signal When Trying to Decide

question 98

Multiple Choice

Which firm provides the better signal when trying to decide which of the firms' stock to buy?

• A)Firm A, which uses an independent accounting firm for auditing.
• B)Firm B, which uses an internal group for auditing.
• C)Firm C, which has seen its stock go up by $20 per share in the last week.
• D)Firm D, which hasn't been under SEC investigation for over 5 years.

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Definitions:

Optimal Consumption

The mix of goods and services that maximizes a consumer's utility given their budget constraints.

Initial Endowment

The initial quantity of goods, services, or resources an individual, institution, or country possesses at the start of an economic analysis.

Relative Prices

The price of one good or service compared to another, indicating their exchange rate in the market.

Normal Good

A type of good for which demand increases when income increases and falls when income decreases, with other factors being constant.