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 Frms 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 beneFts, such as national defence friction, monopoly monopoly somewhere there is always a Frm with monopolistic advantage friction keeps Frms 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-Frm risk various outcomes have occurs such that the Frm 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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This note was uploaded on 04/02/2008 for the course ECONOMICS 220 taught by Professor Clare during the Spring '08 term at Rutgers.

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

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