> Quiz:
> Assume a two-sector economy, with circulating capital only,
> in which production takes 1 year in each sector. The
> profit rate in sector A next year will be 10%, and the
> profit rate in sector B will be 8%, if prices remain the
> same.
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Physical Unit Income Cost Profit
Output Price Price Rate(*)
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A 100 $1.10 $110 $100 10%
B 100 $1.08 $108 $100 8%
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(*) [(Income)/(Cost-price)]-1
> However, in the past several years, the price of As
> product has been falling by 10er year, and the price
> of Bs product has been rising by 10er year.
> Analysts forecast that these trends will continue, and
> judge the two investments to be equally risky.
> All else being equal, in which sector would you invest?
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Physical Unit Income Cost Profit
Output Price Price Rate
--------------------------------------------------------
A 100 $1.0890 $108.90 $100 8.90%
B 100 $1.0908 $109.08 $100 9.08%
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Andrew:
If I understood you, and if I had money (two strong
assumptions), I would invest in sector B. However, let me
say that I hate "quizes", which remind me my represive
education in a catholic school!!!
Alejandro Ramos
24.1.97