Suppose you have invested in a new computer company whose profitability depends

Question

Suppose you have invested in a new computer company whose profitability depends on two factors: (1) whether the U.S. Congress passes a tariff raising the cost of Japanese computers and (2) whether the U.S. economy grows slowly or quickly. What are the four mutually exclusive states of the world that you should be concerned about?

The mutually exclusive states of the world are

A.

slow growth with a tariff, slow growth without a tariff, fast growth with a tariff, and fast growth without a tariff.

B.

the effect of slow growth on your company, the effect of slow growth on Japanese companies, the effect of fast growth on your company, and the effect of

fast growth on Japanese companies.

C.

slow growth, fast growth, a tariff, and no tariff.

D.

a tariff and your computer company, a tariff and no computer company, no tariff and your computer company, and no tariff and no computer company.

E.

slow growth with high profit in Japan, slow growth with low profit in Japan, fast growth with high profit in Japan, and fast growth with low profit in Japan.

Explanation / Answer

The mutually exclusive states of the world are

A. slow growth with a tariff, slow growth without a tariff, fast growth with a tariff, and fast growth without a tariff.

This is because we need to consider, a situation when Congress passed a tariff rising in the case of slow growth and fast growth.

And similarly a situation when Congress does not passed a tariff rising in the case of slow growth and fast growth.

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