Question: The conventional wisdom for urban economic development is: Don't put all your eggs in one basket. Diversify the economy. To explain the idea of diversification,

The conventional wisdom for urban economic development is: "Don't put all your eggs in one basket. Diversify the economy." To explain the idea of diversification, consider old McDonald, who must carry a dozen eggs from the barn to the house. The ground between the barn and the house is slippery, so there is a 50 percent chance that McDonald will slip on a given trip and break all the eggs in his basket. Consider two strategies: a one-basket strategy (a single trip with all 12 eggs) and a two-basket strategy (two trips, with 6 eggs per trip).

a. List all of the possible outcomes under each of the strategies.

b. What is the expected number of delivered (unbroken) eggs under each strategy?

c. What are the trade-offs between the two strategies? If you were McDonald, which strategy would you adopt?

d. What are the lessons for economic development strategies?

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