Which of the Following Explains Why Someone with an Absolute

question 229

Multiple Choice

Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?

• A) They may have a comparative advantage in painting houses, as well.
• B) Even though they have the absolute advantage in painting houses, they still may not be very good at it.
• C) In an efficient market, someone with an absolute advantage in painting houses will always spend their time painting houses.
• D) They may be relatively better at something else than painting houses.

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Definitions:

Price-Earnings Ratio

A valuation metric for a stock, calculated by dividing the current market price of the stock by its earnings per share.

Incremental Value

The additional or extra value generated by making a specific business decision, considered when evaluating multiple options.

Earnings per Share

A financial ratio indicating the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of the company’s profitability.

Merger Premium

The additional cost or amount by which a company's purchase price exceeds the pre-merger valuation of the target company.