Inefficiency means that each asset is employed in its highest-valued use. Each inefficiency implies a money-making opportunity. • An economy is efficient if all assets are employed in their highest-valued uses.
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- Seas Beginning sells clothing by mail order. Animportant question is when to strike a customer fromthe company’s mailing list. At present, the companystrikes a customer from its mailing list if a customerfails to order from six consecutive catalogs. Thecompany wants to know whether striking a customerfrom its list after a customer fails to order from fourconsecutive catalogs results in a higher profit percustomer. The following data are available:■ If a customer placed an order the last time shereceived a catalog, then there is a 20% chance shewill order from the next catalog.■ If a customer last placed an order one catalog ago,there is a 16% chance she will order from the nextcatalog she receives.■ If a customer last placed an order two catalogs ago,there is a 12% chance she will order from the nextcatalog she receives.■ If a customer last placed an order three catalogsago, there is an 8% chance she will order from thenext catalog she receives.■ If a customer last placed an order four…Company X produces a product, GlueX3, that Company X sales for $5. An opportunity presents itself to reallocate its manufacturing facility and related resources to produce Epoxy10. It believes it can sell Epoxy10 for $8. Explain how this switch creates “value”. Be sure to include for whom.Rollo Megabux has $1 million to invest in stocks orbonds. The percentage yield on each investment during thecoming year depends on whether the economy has a goodor a bad year (see Table 17). It is equally likely that theeconomy will have a good or a bad year.a If Rollo is risk-neutral, how should he invest hismoney?b For $10,000, Rollo can hire a consulting firm toforecast the state of the economy. The consulting firm’sforecasts have the following properties:P(good forecast|economy good) .80P(good forecast|economy bad) .20Should Rollo hire the consulting firm? What are EVSIand EVPI? Economy EconomyHas Good Has BadYear YearYield on stocks 22% 10%Yield on bonds 16% 14%
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