If There Is a Decrease in Demand for a Product

question 80

Multiple Choice

If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is

• A)greater than its marginal cost.
• B)equal to its marginal cost.
• C)less than its marginal cost.
• D)greater than its average cost.

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Definitions:

Yield-to-Maturity

The total return anticipated on a bond if it is held until it matures, accounting for interest payments and repayment of capital.

Cost of Debt

The effective rate that a company pays on its total debt, representing the interest expense on outstanding debt.

WACC

The weighted average cost of capital, a calculation that reflects the average rate of return a company is expected to pay its security holders to finance its assets.

Riskier

Describing an option or investment with a higher level of uncertainty or potential for loss.