Answer to Question #210929 in Macroeconomics for charvi

Question

Implications of risk and uncertainity for the theory of firm

Answer 1

The greater the risk, the more the chances of higher uncertainty, but there are higher profits because the risk-making organization can earn the profit beyond the average gains. In addition, increased profit increases the net profit margin; hence, the company can control its costs and provide goods or services significantly higher than the production cost.

 However, if a firm keeps focusing on a single strategy in the marketplace to maximize profits, for example, If a company sells only one particular commodity for its success, and the associated good fails, it is prone to fall into a financial crisis.