When the Loss from a Business-Stealing Externality Exceeds the Gain

question 139

Multiple Choice

When the loss from a business-stealing externality exceeds the gain from a product-variety externality:

• A) market efficiency is likely to be enhanced by the entry of new firms
• B) the market structure is likely to be in transition
• C) firms are more likely to operate at efficient scale
• D) there are likely to be too many firms in a monopolistically competitive market

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Definitions:

Residual Dividend Policy

A strategy where dividends are based on the earnings left over after all project capital needs are met.

Debt-Equity Ratio

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

After-Tax Earnings

The amount of net income a firm has after all taxes have been paid, representing the company's profitability.

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders as dividends, often used for reinvestment.