Risk Shifting Implies

question 57

Multiple Choice

Risk shifting implies:

• A) When faced with bankruptcy, managers tend to invest in high risk, high return projects
• B) When faced with bankruptcy, managers do not invest more equity capital
• C) When faced with bankruptcy; managers may make accounting changes to conceal the true extent of the problem
• D) All of the above

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Definitions:

Economic Profit

A rephrasing of economic profits; it represents the financial gain exceeding the total costs, considering both explicit and implicit costs.

Per-unit Profit

The profit earned by a company for each unit of product sold, calculated by subtracting the cost of producing one unit from the selling price of one unit.

Purely Competitive Firm

A business that operates in a market where there are many buyers and sellers, the products are homogenous, and there are no barriers to entering or exiting the market.

Maximize

To increase to the greatest possible amount or degree, often used in the context of optimizing outcomes such as profit, efficiency, or utility in various fields.