The Efficient Markets Hypothesis Suggests That If an Unexploited Profit

question 5

Multiple Choice

The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market,

• A) it will tend to go unnoticed for some time.
• B) it will be quickly eliminated.
• C) financial analysts are your best source of this information.
• D) prices will reflect the unexploited profit opportunity.

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Definitions:

Entrepreneur's Forgone Interest

The potential interest income sacrificed by an entrepreneur when choosing to invest personal funds into their own business rather than in an interest-bearing account.

Long-Run Average Cost

The per-unit cost of production in the long-term, where all input factors are variable, indicating economies or diseconomies of scale.

Upward-Sloping

Describes a line on a graph that demonstrates an increase in value as it moves to the right, often used to represent increases in costs or prices.