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econ 3-6-08 - themselves ex 1 in 100 lightbulbs is...

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econ 3-6-08.oo3 Topic econ 3/6/08 interest allocates capital in a free market rations available capital to projects which yield the greatest return to society firms tend to reinvest into low interest projects internally, instead of others which may have larger yields, ex. investing on 10% return instead of 12% in an external project government projects often have intangible benefits, such as national defence friction, monopoly monopoly somewhere there is always a firm with monopolistic advantage friction keeps firms from switching industries uncertainty approach certainty exists one possible outcome you know what it is risk exists multiple possibilities you know what the projected rate of success of each is intra-firm risk various outcomes have occurs such that the firm can estimate the probabilities
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Unformatted text preview: themselves ex, 1 in 100 lightbulbs is defective inter-Frm risk various outcomes do not occur often enough in the Frm such that the Frm cannot estimate the probabilities of each outcome themselves the Frm goes to an insurance Frm to protect against it ex, airlines get probabilities from an insurance Frm uncertainty exists when there is a need to make a decision but you don;t know what the outcomes are there is no way to know proFt Topic the reward the frm recieves For having made the correct decision in the Face oF uncertainty loss the penalty a frm experiences For making the wrong decision **the importance oF keeping data** ex: military hospital and expected wounds the innovation approach...
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