Suppose That a Firm Is Earning a 12% Return on Capital

question 146

Multiple Choice

Suppose that a firm is earning a 12% return on capital in a perfectly competitive industry, and the market return outside the industry is 9.5%. Which of the following statements is (are) TRUE?

• A) In the short run, the firm is making a below-market return of 2.5%.
• B) In the short run, the firm is making a negative return on capital of 2.5%.
• C) In the long run, the firm's return on capital will be 0%.
• D) In the long run, the firm's return on capital will be 9.5%.

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Definitions:

Midrange

The statistical measure that calculates the average of the maximum and minimum values in a data set, giving a rough estimate of the data's central tendency.

Standard Deviation

An evaluation metric for the amount of variation or distribution in a set of numerical values.

Variance

A measure of the dispersion of a set of values, calculated as the average of the squared deviations from the mean.

Observations

The instances or data points collected or recorded for the purpose of analysis.