Because It Does Not Face Competition from Other Firms,a Monopolist

question 16

True/False

Because it does not face competition from other firms,a monopolist is guaranteed to make excess profits over time.

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Definitions:

M&M Proposition II

Modigliani and Miller's Proposition II states that a company's cost of equity increases as it increases its leverage due to the risk premium on equity.

Debt-Equity Ratio

A financial ratio that measures the relative proportion of shareholders' equity and debt used to finance a company's assets.

Financial Risk

The chance of incurring a loss in capital in an investment or business operation.

Business Risk

The potential for losses or less-than-expected profits within the operations of a company, not related to financial debt but to the business's environment and operations.