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6. Suppose a company makes and sells bottles. The company can manufacture a million bottles every year (same number each year) at the cost of
6. Suppose a company makes and sells bottles. The company can manufacture a million bottles every year (same number each year) at the cost of $6/bottle and sell them at the price of $10/bottle. Suppose there is no other cost, and bottle prices never change, and that the company can always sell all the bottles it manufactures. Thus, the company makes $4 million profits each year. Further assume the company always returns profits back to share holders. Suppose one day the company experienced a technology breakthrough and can lower the bottle production cost to $2/bottle. Assume this is the only change that happened. When this news was announced, the company's stock price immediately jumped up by 50%. Does the market appear efficient? Why or why not
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