Gibrat's Law of Proportionate Growth says that the probability of growing by a certain percentage over a given period of time is independent of initial asset size. An industry governed by such a law will exhibit a lognormal distribution for firm size. Why do we care?

A. The predictions of Gibrat's Law perfectly match those of the Cournot oligopoly model.

B. In the data, firm size for many mature industries appears to be lognormal distribution is perfectly flat.

C. In the data, firm size is roughly symetrically distributed, and the lognormal distribution is perfectly flat.

D. In the data, smaller/younger firms' sizes appear to be lognormally ditributed.

Question

Monique Spencer

Business

3 November, 09:55

Gibrat's Law of Proportionate Growth says that the probability of growing by a certain percentage over a given period of time is independent of initial asset size. An industry governed by such a law will exhibit a lognormal distribution for firm size. Why do we care?

A. The predictions of Gibrat's Law perfectly match those of the Cournot oligopoly model.

B. In the data, firm size for many mature industries appears to be lognormal distribution is perfectly flat.

C. In the data, firm size is roughly symetrically distributed, and the lognormal distribution is perfectly flat.

D. In the data, smaller/younger firms' sizes appear to be lognormally ditributed.

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Answers (1)

Know the Answer?

Milo Wong · Answer 1

In the data, firm size for many mature industries appears to be lognormal distribution is perfectly flat.

Answer: Option B.

Explanation:

Gibrat law was the law given by Robert Gibrat. It was the law that said the growth and the development of the firm would not depend on any of the sizes of the assets with which the firm was started in the initial or the starting period.

The firm will grow by a particular percentage over a period of some years independent of the fact of the size of the assets with which it was started.