Suppose that you are considering to start a business. You can invest your wealth of 100 for it. At t (today), you will buy assets needed for the business using the initial investment. You will run the business only for one period. In other words, the business ends at t+1. You observe the business outcome at t+1. The assets purchased at t have zero remaining value at t+1. You are the single owner of the company. You expect the business will generate a profit of double of the initial investment in a good economic condition. You expect it will generate a profit of half of the initial investment in a bad economic condition. Ignore taxes. (a) What is the profit and net gain in each scenario?
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