Two Frequently Cited Ratios of Profitability That Can Be Read

question 36

Multiple Choice

Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________.

• A) the earnings per share and the return on total assets
• B) the gross profit margin and the earnings per share
• C) the gross profit margin and the return on total assets
• D) the gross profit margin and the net profit margin

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Definitions:

Marginal Product

The additional output that results from using one more unit of a particular input, while holding other inputs constant.

Average Product

The output obtained by dividing the total product by the number of units of the variable input used in production, ideally reflecting productivity per input unit.

Total Product

The total output or quantity of goods produced by a firm or economy at a given level of input.

Diminishing Returns

A principle stating that if one factor of production is increased while other factors are held constant, the incremental increases in output will eventually decrease.