-Assume That Firm B Can Divest Itself of $20,000 of Firm

question 109

Multiple Choice

$\begin{array}{lrrr}&\text { Firm A }&\text { Firm B }&\text { Firm C }\\\text { Actual earnings } & \$ 6,000 & \$ 14,000 & \$ 18,000 \\r & 10 \% & 8 \% & 12 \% \\B V_{t-1} & \$ 100,000 & \$ 150,000 & \$ 190,000\end{array}$
-Assume that Firm B can divest itself of $20,000 of unproductive capital with earnings falling by only $3,000.Abnormal earnings are

• A)$200.
• B)$400.
• C)$600.
• D)$800.

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Definitions:

Irrational Behavior

Irrational behavior describes actions or decisions that are not in line with logical or rational thinking, often defying expected outcomes based on standard economic theories.

Diamond

A precious gemstone formed under high temperature and pressure conditions, often used in jewelry and industrial applications, not primarily an economic term unless discussing market dynamics.

Market Outcomes

The final results of all the buying and selling interactions between consumers and firms in a particular market.

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.