When Resources Move from a Low-Profit Industry into a High

question 2

Multiple Choice

When resources move from a low-profit industry into a high profit industry:

• A) the value of production falls.
• B) the profits of the low-profit industry fall and the profits of the high-profit industry rise.
• C) the profits of the low-profit industry rise and the profits of the high-profit industry fall.
• D) the Invisible Hand Property 2 is violated.

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Definitions:

Cost of Capital

The rate of return that a company must earn on its investment projects to maintain its market value and attract funds.

Implicit Costs

The opportunity costs incurred by a firm for using its own resources without a direct monetary payment.

Implicit Costs

Costs that represent the loss of potential income from resources when they are not utilized in their best alternative use.

Opportunity Cost

Forgoing possible gains from various alternatives by picking a specific one.