Given below is the scatter plot of the price/earnings ratio versus earnings per share of 20 U.S.companies.There appears to be a negative relationship between price/earnings ratio and earnings per share.
Definitions:
Long Run
A period of time sufficient for all markets to adjust to changes, including the reallocation of resources and entrance or exit of firms in an industry.
Perfectly Competitive Industries
Markets where no single buyer or seller has the power to influence prices, and where products are homogeneous and information is freely available.
Easily Enter And Exit
A term used to describe a market condition where barriers to entry and exit are low, allowing for free movement of firms into and out of the industry.
Homogeneous Products
Products that are identical in quality and cannot be distinguished by consumers, making them perfect substitutes.
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