Idiosyncratic Risk

question 151

Multiple Choice

Idiosyncratic risk:

• A) cannot be eliminated through diversification.
• B) is unique to a company or asset.
• C) is only present in index funds.
• D) All of these are true.

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Definitions:

Inefficient

A state where resources are not optimally allocated, often resulting in wasted resources or outputs that do not maximize potential value.

Monopolistically Competitive

Describes a market structure where many companies sell products that are substitutes, but are not perfect substitutes, leading to some degree of market power for each firm.

Barriers to Entry

Obstacles that make it difficult for new competitors to enter a market, such as high startup costs or strict regulations.

Product Differentiation

The process of distinguishing a product from others in the market to make it more attractive to a particular target market.