Because the future is inherently uncertain, firms often follow

“rules of thumb” to make decisions such as how much capital (factories and machinery for production)

to buy and how to price their products. Examples are financial ratios and markup pricing.

a. Does this behavior make sense?

b. How does uncertainty that firms face encourage firms to use “rules of thumb”?

c. What implications for economic analysis does firms’

use of rules of thumb have? (Post-Keynesian)