What do people try to achieve when they make a decision under uncertainty?
What will be an ideal response?
When making decisions under uncertainty people maximize their expected utility.
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Refer to the table below. Suppose the perfectly competitive market for dairy products had a 40 percent chance of a high price of $3.00 and a 60 percent chance of a low price of $2.00. However, both Happy Cows and Free Cows have revised their probabilities and now believe that the probability of a high price of $3.00 is 80 percent and the probability of a low price of $2.00 is 20 percent. If the
managers of Free Cows want to maximize expected profit based on the new probabilities by how much will they change the quantity produced?
Happy Cows and Free Cows are two separate perfectly competitive dairy farms. The table above shows the respective firms' marginal cost at various production levels.
A) Free Cows will increase their production by 40 units.
B) Free Cows will decrease their production by 40 units
C) Free Cows will decrease their production by 20 units.
D) Free Cows will increase their production by 20 units.
The quantity of a good demanded tends to increase as its price falls because: a. a decrease in price shifts the demand curve to the right
b. a decrease in price shifts the demand curve to the left. c. a decrease in price shifts the supply curve to the right. d. a decrease in price leads consumers to substitute toward this now relatively cheaper product.
If a stock or bond is risky
a. risk averse people may be willing to hold it as part of a diversified portfolio. b. risk averse people may be willing to hold it if the expected return is high enough. c. both A and B are correct. d. risk averse people will not hold it.
If a country raises its budget deficit, then in the market for foreign-currency exchange
a. supply shifts left. b. supply shifts right. c. demand shifts left. d. supply shifts right.