If a Firm Operating in a Fairly Competitive Market Earns

question 37

Multiple Choice

If a firm operating in a fairly competitive market earns a large economic profit,then,over time,

• A)old firms will exit and prices will rise.
• B)old firms will exit and prices will fall.
• C)new firms will enter and prices will rise.
• D)new firms will enter and prices will fall.

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Definitions:

Growth Rate

The percentage increase in the size or value of something, such as a company's revenue or an economy's GDP, over a specified period.

Proxy Fights

Proxy fights occur during shareholders' meetings when opposing groups of shareholders solicit votes from other shareholders to win control over the company's board of directors.

Board of Directors

A group of elected or appointed members who jointly oversee the activities of a company or organization.

Efficient Market Hypothesis

The theory that all existing information is already reflected in securities prices, thus making it impossible to consistently achieve higher returns.