Use the Following to Answer Questions

question 77

Multiple Choice

Use the following to answer questions:
Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho company. If it is a rainy year and he invests only in the sunglass company, he will lose $5,000. However, if it is a rainy year and he invests only in the rain poncho company, he will earn $10,000. If it is a sunny year and he invests only in the sunglass company, he will earn $10,000; if he invests only in the rain poncho company, he will lose $5,000 in a sunny year. There is a 50% chance of a sunny year and a 50% chance of a rainy year.
-(Scenario: Diversification) Look at the scenario Diversification. If Morris invests all of his money in the sunglass company, what is his expected gain or loss?

• A) a loss of $2,500
• B) to break even
• C) a gain of $2,500
• D) a gain of $10,000

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Definitions:

Private Supply

The provision of goods or services by businesses or individuals rather than by the government.

Marginal Social Cost

The total cost society pays for the production of an additional unit of a good or service, including both private costs and any external costs.

Public Beach

A beach area open to the general public, often maintained by a governmental entity, providing access to the shoreline without private ownership restrictions.

Common Resource

A type of good that is non-excludable and rival in consumption, such as public parks or fish in the ocean.