Assume a Decreasing-Cost Industry That Is Initially in Long-Run Competitive

question 160

Multiple Choice

Assume a decreasing-cost industry that is initially in long-run competitive equilibrium. A decrease in demand will cause a(n) __________ in prices and profits, and as a result, firms will __________ the industry, causing the market supply curve to shift __________,which, in turn, will eventually cause the equilibrium price to be __________ before.

• A)a decrease; exit; rightward; lower than
• B)an increase; enter; rightward; higher than
• C)a decrease; exit; leftward; higher than
• D)an increase; enter; rightward; the same as
• E)an increase; exit; leftward; lower than

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Definitions:

Earnings Per Share

A metric that calculates a company's profit divided by its number of outstanding shares of common stock.

Price-Earnings Ratio

A financial metric used to evaluate the relative value of a company's shares, calculated by dividing the market price per share by the earnings per share.

Dividend Payout Ratio

The percentage of earnings distributed to shareholders in the form of dividends.

Dividend Yield Ratio

A financial metric indicating the annual dividends paid by a company as a proportion of its share price.