A Retailer Is Considering Building a Large Store

question 52

Multiple Choice

A retailer is considering building a large store.If the local economy experiences expansion,the firm expects the store to earn a $2,000,000 profit next year.If the local economy experiences a contraction,the firm expects the store to lose $400,000 next year.Analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction) .What is the expected monetary value (EMV) of building the large store?

• A)$1,600,000
• B)$720,000
• C)$2,000,000
• D)$80,000
• E)$1,520,000

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Definitions:

Oligopoly

A market structure characterized by a small number of firms controlling a majority of the market share, leading to limited competition.

Level of Output

Refers to the total quantity of a good or service produced by a firm or economy at a given time.

Output Effect

The impact on total production in the economy resulting from changes in price levels, often analyzed in the context of supply and demand shifts.

Price Effect

The impact on consumer behavior and market demand resulting from a change in the price of a good or service, influencing buying decisions.