In a Perfectly Contestable Market in the Long Run, Each

question 193

Multiple Choice

In a perfectly contestable market in the long run, each firm

• A)produces at the minimum point on its long-run average total cost curve.
• B)earns a profit below its opportunity cost of capital.
• C)avoids making capital expenditures.
• D)All of the above are correct.

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Definitions:

Return on Investment (ROI)

A measure used to evaluate the efficiency of an investment or to compare the efficiency of several different investments, calculated as net profit divided by the cost of the investment.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Average Operating Assets

The average value of the assets used in the normal course of business to generate operating income, often calculated over a period to assess performance.

Controllable Fixed Costs

Costs that management has the power to influence or change in the short term.