Figure 10.14 -Refer to Figure 10.14.If the Diagram Represents a Typical Firm

question 163

Multiple Choice

Figure 10.14
-Refer to Figure 10.14.If the diagram represents a typical firm in the market, what is likely to happen in the long run?

• A)Some firms will exit the market causing the demand to increase for firms remaining in the market.
• B)New firms will enter the market causing the demand to decrease for existing firms.
• C)Inefficient firms will exit the market and new cost-efficient firms will enter the market.
• D)Competition will be intensified as firms strive to make long-run profits.

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Definitions:

Capital Structure

Refers to the way a corporation finances its assets through a combination of debt, equity, or hybrid securities.

Total Leverage

A financial metric that assesses the impact of using both operating and financial leverage on a company's earnings per share.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating how fixed and variable costs impact a firm's earnings.

Optimal Capital Structure

The combination of debt and equity that minimizes a company's cost of capital and maximizes its value.