Above- Normal Profits Cannot Be Sustained in Perfectly Contestable Markets

question 4

Multiple Choice

Above- normal profits cannot be sustained in perfectly contestable markets because of:

• A) the threat of 'hit and run' competition
• B) the presence of a large number of competing firms
• C) the lack of sunk costs and hence the absence of economies of scale
• D) none of the above

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Definitions:

Consolidated Net Income

Consolidated net income refers to the total profit of a parent company and its subsidiaries after all intercompany transactions have been eliminated, representing the overall earnings of the corporate group.

Parent

The entity that controls one or more subsidiaries through ownership of the majority of voting rights or through other means.

Subsidiary

A company that is controlled by another company, known as the parent company, through the ownership of more than half of its voting stock or through other means of control.

Intangible Assets

Assets that lack physical substance but provide economic benefits to a company, such as trademarks, patents, and copyrights.