In a Theoretical Paper, Williams (1995) Develops a Model of Industry

question 6

Multiple Choice

In a theoretical paper, Williams (1995) develops a model of industry equilibrium that incorporates agency costs due to both creditor-shareholder and management-shareholder conflicts.His model has implications for the distribution of firms within an industry in equilibrium.Which of the following statements correctly describes Williams' depiction of industry equilibrium?

• A)Each industry has a core of large, profitable, secure, capital-intensive firms, each with at least some external debt, and a competitive fringe of small, marginally profitable or unprofitable, risky, labor-intensive firms.
• B)All firms in an industry will ultimately be large, labor-intensive firms with large proportions of debt in their capital structures.
• C)All firms in an industry will ultimately be small, capital-intensive firms with no debt.
• D)All firms in an industry will ultimately be large, capital-intensive firms with large proportions of debt in their capital structures.

Understand the relationship between income changes and the classification of goods as inferior or normal.

Analyze the effects of price changes on consumer demand through the substitution and income effects.

Define and identify Giffen goods and their characteristics.

Understand the concepts of homothetic preferences and their implications for consumer demand.

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Definitions:

Average Revenue Curve

A graphical representation showing how the average revenue per unit sold varies with the quantity sold.

Perfect Competition

A market structure characterized by many firms offering identical products, free entry and exit of firms, and full information availability, leading to efficient outcomes.

Total Revenue

The total income generated by a company or entity from its business activities, often calculated as the product of price and quantity sold of goods or services.

Marginal Revenue

The supplementary income generated from the sale of an additional good or service by a firm.