Kenneth Arrow Discussed Two Important Situations in Which Profit Maximization

question 19

Multiple Choice

Kenneth Arrow discussed two important situations in which profit maximization can be socially inefficient. One of these occurs when

• A) there is an imbalance of knowledge between buyer and seller.
• B) business would be an "inept custodian" of public values.
• C) firms are unwilling or simply refuse to maximize profits.
• D) corporate culture promotes dysfunctional social relations.

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Definitions:

Zero-coupon Bond

A bond that does not make periodic interest payments during its life and is instead sold at a deep discount from its face value, with the full face value being paid at maturity.

Yield To Maturity

The cumulative income projected from a bond, provided it is retained till its expiration, factoring in both the interest disbursements and principal reimbursement.

Rate Of Return

The gain or loss on an investment over a specified time period, expressed as a percentage of the investment's cost.

Par Value

The face value of a bond or stock, which is the amount paid back to the bondholder at maturity.