When Managers of Firms in a Competitive Market Observe Falling

question 54

Multiple Choice

When managers of firms in a competitive market observe falling profits,they are likely to infer that the market is characterized by

• A) a violation of conventional market forces.
• B) over-investment.
• C) the entry of new firms.
• D) too few firms in the market.

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Definitions:

Portfolio

A collection of investments held by an individual or institution, including stocks, bonds, commodities, and more, aimed at diversifying risk.

Required Return

The minimum expected return on an investment necessary for it to be considered a viable option, taking into account its risk level.

Dividend

A distribution of a portion of a company's earnings decided by the board of directors to its shareholders.

Risk Aversion

A preference for avoiding risk, where individuals or entities prioritize certainty and are reluctant to engage in investments with uncertainty.