Suppose That a Firm Is Earning a 12% Return on Capital

question 146

Multiple Choice

Suppose that a firm is earning a 12% return on capital in a perfectly competitive industry, and the market return outside the industry is 9.5%. Which of the following statements is (are) TRUE?

• A) In the short run, the firm is making a below-market return of 2.5%.
• B) In the short run, the firm is making a negative return on capital of 2.5%.
• C) In the long run, the firm's return on capital will be 0%.
• D) In the long run, the firm's return on capital will be 9.5%.

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Definitions:

F Value

A statistic used in analysis of variance (ANOVA) to determine if the means of three or more variables differ significantly.

Omnibus

An overarching term used to describe a single document or collection containing multiple individual items, often used in legal or legislative contexts.

ANOVA

Short for Analysis of Variance, a statistical method used to compare the means of three or more samples to understand if at least one of the sample means significantly differs from the others.

Level of Significance

The threshold below which a result is considered statistically significant, often denoted by alpha (α), commonly set at 0.05 or 5%.