A Key Assumption of Using Price-Earnings Ratio as a Measure

question 18

Multiple Choice

A key assumption of using price-earnings ratio as a measure of a potential future asset-price bubble is that:

• A)past earnings are mirror images of the future.
• B)past earnings are a decent guide to future earnings.
• C)future earnings are known with certainty.
• D)inflation is zero.

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Definitions:

Average-Fixed-Cost Curve

A graphical representation showing how the fixed cost per unit changes with changes in the volume of production.

AVC Curve

The Average Variable Cost (AVC) curve represents how the per-unit variable cost of production changes as the quantity of output changes.

ATC Curve

The average total cost curve, which plots the per-unit total cost of producing goods at different levels of output.

Opportunity Cost

Represents the benefits that are missed or foregone when choosing one option over another.