Use the Information for the Question(s)below

question 56

Multiple Choice

Use the information for the question(s) below.
Consider an economy with two types of firms, S and U. The S firms always move together, but U firms move independently of each other. For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.
-If the Reserve Bank was to change from an expansionary to contractionary monetary policy, this would be an example of:

• A)unsystematic risk.
• B)diversification risk.
• C)systematic risk.
• D)independent risk.

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Definitions:

Perfect Competition

A market structure characterized by a large number of small firms, identical products, perfect information, and no barriers to entry or exit.

Multiplant Firm

A company that operates in more than one location, often to take advantage of different regional resources or markets.

Marginal Costs

The cost associated with producing an additional unit of output in a production process.

Maximize Revenue

The process of adjusting price levels, production quantities, and sales strategies to achieve the highest possible sales income.