Which of the Following Is a Potential Cost of Diversification

question 24

Multiple Choice

Which of the following is a potential cost of diversification?

• A)Firms become bureaucratic and more expensive to manage as they grow.
• B)The cost of production increases,thereby reducing profits earned by a firm.
• C)The supply of labor reduces,thereby reducing the level of production.
• D)Shareholders find it expensive and risky to hold a diversified portfolio.

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Definitions:

Inflation

The speed at which the overall price level of goods and services increases, leading to a decline in the currency's buying power.

Interest Rates

The cost of borrowing money or the reward for saving, usually presented as a percentage.

Bond Prices

The market price at which a bond is traded, which inversely varies with interest rates and the bond's perceived risk.

Federal Reserve

is the central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing banking services to governmental institutions.