What Is the Purpose of Computing Profitability Ratios

question 78

Multiple Choice

What is the purpose of computing profitability ratios?

• A) To determine liquidity
• B) To determine the most efficient use of resources
• C) To determine the liquidity of the firm
• D) To determine the potential risk of business activity
• E) To determine the potential returns investors can expect

---

Definitions:

Contract Curve

In an Edgeworth Box diagram, the curve that represents all the Pareto efficient allocations between two consumers.

Pareto Optimal

A situation of distribution where improving the condition of any individual necessitates the detriment of at least another individual.

Competitive Equilibrium

A state in a market-based economy where supply equals demand, meaning all buyers and sellers are satisfied at the current price level and quantity of goods.

Feasible Allocation

is a concept in economics that refers to the division of resources or goods among various uses or people in a way that is possible given the resources available.