Suppose a Firm in a Competitive Market Increase Its Output

question 71

Multiple Choice

Suppose a firm in a competitive market increase its output by 25 per cent, the price of its output is likely to:

• A)decrease by more than 25 per cent
• B)increase by more than 25 per cent
• C)remain unchanged
• D)this cannot be determined without information on the firm's costs

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Definitions:

Financial Decision Maker

An individual or group responsible for making investment, financing, and dividend decisions within an organization.

Expected NPV

Projected Net Present Value; an estimation of a project's current value based on expected future cash flows discounted at the project's cost of capital.

Efficient Market

A financial market theory suggesting that asset prices fully reflect all available information, making it impossible to consistently achieve higher than average returns.

Insider Trading Laws

Regulations that prohibit the trading of a company's stocks or other securities by individuals with access to non-public, material information about the company.