Explore BrainMass


Uncertainty is related to the accuracy of the economic model that tries to determine levels of growth and is tied to most fields in economics. The lower the probability, the higher the uncertainty and therefore, the higher the risk from an economic standpoint. For example, a manufacturer does not want to overcapitalize or overproduce for the size of the market. The converse is also true. If the model is too optimistic or pessimistic, it leads to uncertainty.

Uncertainty is most often referred to in terms of money as a representative for composite consumption¹. The topic of uncertainty encompasses the concepts of utility, risk aversion, and the analysis of human behaviour and decision making when under uncertainty. Consumption depends on the outcome of an event, referred to as the state of nature. The contingent consumption plan is a statement of the consumption that occurs in each state of nature¹. The most used models in the study of behaviour under uncertainty are models of imperfect and asymmetric information.

The outcome of an uncertain situation is referred to as the state of the world. Contingent commodities are commodities whose level depends on which state of the world occurs¹.



1. Holden, Tom. February 8, 2013. Uncertainty. Retrieved from

Production and Consumption with and without Tariffs

Please see attachment then answer the following questions: The graph above shows the demand and supply of socks for the country of Bangladesh. a. If trade is avoided, Bangladesh consumes _____ pairs of socks at a price of _____ per socks. b. With free trade, for a world price of $4 per pair of socks, Bangladesh is producin

Selecting the optimal output level

Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table in the attached file and answer each of the questions. a. The marginal pro

Supply: Production, Costs, and Profits

1. How do firms benefit from economies of scale? 2. What might be some potential disadvantages of being part of a large corporation? 3. Suppose business is booming at your firm. It is contemplating adding more capital, but the day supervisor suggests simply hiring more workers. How should the you decide which alternative t

Decisions under Risk and Uncertainty

Remox Corporation is a British firm that sells high-fashion sportswear in the United States. Congress is currently considering the imposition of a protective tariff on imported textiles. Remox is considering the possibility of moving 50 percent of its production to the United States to avoid the tariff. This would be accomplishe

Micro Theory: Uncertainty & Information

Note for OTA: This corresponds to problem 7.8 in Nicholson's "Microeconomic Theory: Basic Principals". You should not need the book at all but if you do there are slides available online which contain everything in the book (a Google search should work). We've seen that the amount an individual is willing to pay to avoid a fa

Game Theory

Using Game Theory to explain, would you be likely to tip differently at the café next to your office than you do at the one at which you stop on your summer vacation to Yellowstone?

Optimization / LP Word Problem

A poet has inherited 90 ha (or acres) of woods from her late grandmother. The poet finds that talks in the woods makes her happy, although she has to rely on income from the woods to support her during times of writers' block. In all she has 90 ha, 40 ha of which are covered in red pine forest, the other 50 ha are covered in mix

Managerial Economics Questions

Need help with the problems in the attached document. Book: Managerial Economics: Theory, Applications, and Cases, 7th edition. By Allen, Doherty, Weigelt, and Mansfield.

Opportunity cost of capital

A company is drilling a series of new wells. About 20% of the new holes will be dry. Even if they strike oil there is uncertainty about the amount of oil produced. 40% of new wells only produce a 1000 barrels a day; 60% produce 5000 barrels a day forecast the annual cash revenues from a new perimeter well. Use a future pr

Minimizing the uncertainty

Company ABC's shares traded at $83 each in November 2006. Financial analysts were expecting the firm to announce earnings of $3.33 per share for the just-ended October 31 fiscal year and a book value per share of $19.36. The annual dividend per share for fiscal 2006 was 0.64. In addition,analysts were forecasting earnings for fi

Global Expansion: Decision Making with Uncertainty

You're the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities: England, France and Germany. If you enter the English market, you have a .5 chance of big success (selling 100,000 units at a per-unit

Risk, uncertainty and information

Question (1): Explain what, in auction theory, is meant by the "winner's curse'? Question (2): State the revenue equivalence theorm, explaining the terms involved. Question (3): Why, in the case of private values, is an English auction similar to a second-price sealed bid auction?

Asymmetry of information - Market for lemons

A risk -neutral consumer is deciding whether to purchase a homogeneous product from one of two firms. One firm produces an unreliable product, and the other a reliable product. At the time of sale, the consumer is unable to distinguish between the two firms' products. From the consumer's perspective, there is an equal chance tha

Multiple choice question on the optimal mix of output

The optimal mix of output may not be produced by an economy because of the existence of: a) monopolies b) externalities c) public goods d) all of the above I have many more questions, and I will direct those to the OTA's who can answer the questions in the most accurate and timeliest manner. that is, ASAP with 99% confid

Expected return and risk on stocks

An individual is considering the purchase of stocks of two firms: an auto-lube chain and a pharmaceutical corporation. Because of the uncertainty in oil prices, you estimate that there is a 50-50 chance of your either earning an 80 percent return on your investment or losing 80 percent of your investment within a year. The pharm

Scenario Analysis - Huang Industries

Huang Industries is considering a proposed project for its capital budget. The company estimates that the project's NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. The company's CFO, however, forecasts that there is only a 50 percent chance that the eco

Financial Economics

1. A project has the following forecasted cash flows: C0 C1 C2 C3 -100 +40 +60 +50 The estimated project beta is 1.5. The market return is 16 percent. The risk-free rate is 7 percent. a. What is the opportunity cost of capital? b. What is the project's net present value? c. What are the certainty equival


1) Which of the following statements is most correct? a. In general, the more uncertainty there is about market conditions, the more attractive it may be to wait before making an investment. b. In general, the greater the strategic advantages of being the first competitor to enter a given market, the more attrac

Capital budget analysis

Do you account for the risk in setting different NPV requirements, of in the certainty of the cash flow itself?

distributing marketable pesticide permits

Suppose that the governmental wished to decrease the use of a pesticide that is leaking into water supplies in a watershed by 60% from current use levels. Discuss the advantages and/or disadvantages of distributing marketable pesticide permits to each farm operating in the watershed equal to 40% of its current level of use o

CoffeeTime is considering selling juices along with its other products.

CoffeeTime is considering selling juices along with its other products. States of Nature High Sales Med. Sales Low Sales A(0.2) B(0.5) C(0.3) A1 (sell juices) 3000 2000 -6000 A2 (don't sell juices) 0 0 0 The probabilities shown above represent the states of nature and the decision maker's (e.g., manager) degre

Economic Demographic Data Collection

Three years ago the CEO of a large firm instituted a plan that encourages division managers to share information obtained about the demographic characteristics of those who purchase the firm's final product. Since the plan was implemented, however, the CEO has noticed that less information is available than ever. Why do you thin

Probability distribution questions

I need to know if I have correctly answered the following questions. If not please explain why: Our book is Managerial Economics 8th edition. 1. A probability distribution: ANSWER B a. is a way of dealing with uncertainty b. lists all possible outcomes & the corresponding probabilities of occurrence c. shows only the