Are Barriers to Entry Effective

question 56

Multiple Choice

Are barriers to entry effective?

• A)Yes, because long-term empirical evidence shows that industries with high barriers to entry exhibit higher returns on investment on average.
• B)Yes, because once established they are irreversible.
• C)No, because firms can overcome these barriers by modifying their strategies.
• D)No, because higher returns attract more new entrants who want to benefit from higher returns than in non-protected industries.

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Definitions:

Stock Price Changes

Variations in the market price of a company’s stock over time.

Book-To-Market Firms

Firms characterized by their high book value relative to market value, often used as an investment metric.

Adjusting for Beta

The process of modifying an investment or portfolio's risk profile to align with a desired level of market volatility or beta.

Underpriced

A term used when a security is selling for a price less than its intrinsic or fair value.