Consider an Economy with Two Types of Firms, S and I

question 75

Multiple Choice

Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 20% probability that they will have a 20% return and a(n) 80% probability that they will have a -30% return. What is the expected return for an individual firm?

• A)-12%
• B)-20%
• C)10%
• D)20%

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Definitions:

Rational Freedom

The capacity to make decisions based on reason rather than compulsion, allowing individuals to act in accordance with their own rational interests.

Carefully Planned

Something that has been thought through with great attention to detail and organized in advance.

Heisenberg Principle

The Heisenberg Principle, or Uncertainty Principle, states that the position and velocity of an object cannot both be measured exactly, simultaneously, even in theory.

Subatomic Level

Pertaining to the realm smaller than an atom, involving particles such as protons, neutrons, and electrons.