Which One of the Following Is the Best Example of a Risk

question 16

Multiple Choice

Which one of the following is the best example of a risk associated with stock ownership?

• A) The stock paid a regular quarterly dividend.
• B) The firm's net income decreased by 4 percent for the quarter, as had been expected.
• C) One of the firm's patent applications was unexpectedly rejected.
• D) The firm's cost of debt increased as the result of an expected tax cut.
• E) The firm's production costs increased in line with previous years.

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Definitions:

Allocative Efficiency

Achieved when resources are distributed in a way that maximizes the net benefit to society, ensuring that each good is produced up to the point where the last unit provides a marginal benefit equal to the marginal cost of producing it.

Regulation Dilemma

The challenge of finding the balance between necessary government intervention in markets to correct failures and excessive regulation that may stifle competition and innovation.

Economic Profits

The excess of total revenues over the total costs, including both explicit and implicit costs, indicating the profitability beyond the normal return of investments.

Natural Monopoly

A market condition where a single supplier can provide a product or service at a lower cost than any potential competitor, often due to economies of scale.