David Is Trying to Decide Whether to Add Capital Through

question 138

Multiple Choice

David is trying to decide whether to add capital through investing more of his own money or through borrowing money from the bank.To help him decide,you remind him that ss long as his firm's rate of return on its assets is greater than the cost of the debt,his rate of return on equity will _____ as the firm uses more debt.

• A)decrease
• B)increase
• C)remain the same
• D)fluctuate

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Definitions:

Homogeneous Oligopolists

Firms within an oligopoly market structure that offer products or services that are very similar, making them close substitutes for each other.

Pure Monopoly

A market structure where a single firm controls the entire market for a product or service, with no close substitutes.

Kinked-Demand Curve

A demand curve that has a distinct bend or "kink" at a certain price level, often used to describe price stability in oligopolistic markets.

Highly Elastic

Refers to a market condition where the demand or supply for a product responds very significantly to changes in its price.