An American-Style Call Option with Six Months to Maturity Has

question 60

Multiple Choice

An American-style call option with six months to maturity has a strike price of $42. The underlying stock now sells for $50. The call premium is $14. What is the intrinsic value of the call?

• A) $12
• B) $10
• C) $8
• D) $23

Distinguish between economic profit, normal profit, and loss scenarios for competitive firms.

Understand the concept of optimal allocation of scarce resources in a purely competitive industry.

Describe conditions for long-run equilibrium in a purely competitive firm.

Identify the features indicating productive efficiency and allocative efficiency in pure competition.

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Definitions:

Industry Tightening

A period where industry competition becomes more intense, often leading to consolidation, increased regulation, or higher barriers to entry.

Monopolistic Competition

A market structure characterized by many competitors selling products that are similar but not identical.

Pure Competition

A market structure characterized by a large number of sellers offering identical products, where no single seller can influence market prices.

Substitutes

Products or services that can serve as replacements for each other, fulfilling the same need or desire.