If an Industry Earns a Return on Capital in Excess

question 1

Multiple Choice

If an industry earns a return on capital in excess of its cost of capital:

• A)Incumbents will earn abnormal profit, and build entry barriers.
• B)The government needs to make sure that competition will increase.
• C)It is likely to attract the attention of firms looking to enter the industry, which may eventually lead to the return on capital falling.
• D)It will attract firms outside the industry, but the incumbents will have erected entry barriers.

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