Richard Has Been Following Information About a Firm on a Financial

question 147

Multiple Choice

Richard has been following information about a firm on a financial website. He has noticed that the firm's price-to-earnings ratio (P/E) has been steadily rising. Richard can conclude from this result that the company:

• A) is in serious financial trouble.
• B) has just issued more shares of common stock.
• C) has recently increased its dividend.
• D) may have a growth in future earnings.

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Definitions:

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital.

Law of Diminishing Returns

An economic principle stating that as one input in the production process is incrementally increased, holding all other inputs constant, there will be a point at which the added output from each additional unit of input will start to decrease.

Dollars Per Unit

A unit cost measure representing the price or cost of a single item or measure of goods or services.

Elasticity of Product Demand

A measure of the responsiveness of the quantity demanded of a product to changes in its price.