Which of the Following Benefits of Diversification Explains the Idea

question 29

Multiple Choice

Which of the following benefits of diversification explains the idea that combining unrelated businesses can allow firms to finance projects through cross-subsidization when they previously were unable to finance the same projects externally?

• A)Use of internal capital markets
• B)Economies of scale and scope
• C)Economizing on transaction costs
• D)Diversifying shareholder portfolios
• E)Identifying undervalued firms

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Definitions:

Law of Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain the same.

Average Product

The output per unit of input, calculated by dividing total product by the quantity of input.

Prosecuting Attorney

A legal representative responsible for presenting the case in a criminal trial against an individual accused of breaking the law.

Criminal Litigation

The process of bringing and conducting a lawsuit against someone charged with a criminal offense, encompassing the trial and any appeals.