Investor choice People often convey the idea behind MM's proposition l by various supermarket analogies, for example, “The value of a pie should not depend on how it is sliced,” or, “The cost of a whole chicken should equal the cost of assembling one by buying two drumsticks, two wings, two breasts, and so on.”
Actually proposition 1 doesn’t work in the supermarket. You’ll pay less for an uncut whole pie than for a pie assembled from pieces purchased separately. Supermarkets charge more for chickens after they are cut up. Why? What costs or imperfections cause proposition I to fail in the supermarket? Are these costs or imperfections likely to be important for corporations issuing securities on the U.S. or world capital markets? Explain.
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- As inflation rises, people will tend to go to the bank more often. This is known as menu costs. go to the bank more often. This is known as shoeleather costs. go to the bank less often. This is known as the inflation fallacy. go to the bank less often. This is known as redistribution costsarrow_forwardAnalyze the following statements and categorize them into Determinants of Demand(DD) or Determinants of Supply (DS)._________10. Josh patronize shampoo A rather than shampoo B because of its pricebut a sudden increase in price of shampoo A, also change the mind of Josh which nowchooses shampoo B as a substitute for shampoo A because it is cheaper.arrow_forwardBased on Dobson and Kalish (1988). Chandler Enterprises produces two competing products, A and B. The company wants to sell these products to two groups of customers. The values each customer places on a unit of A and B are shown in the file P04_123.xlsx. Each customer will buy either product A or product B, but not both. A customer is willing to buy product A if she believes that the premium of product A is greater than or equal to the premium of product B and premium of product A is greater than or equal to 0. Here, the “premium” of a product is its value minus its price. Similarly, a customer is willing to buy B if she believes the premium of product B is greater than or equal to the premium of product A and the premium of product B is greater than or equal to 0. Group 1 has 1000 members, and group 2 has 1500 members. Chandler wants to set prices for each product to ensure that group 1 members purchase product A and group 2 members purchase product B. Determine how Chandler can…arrow_forward
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