The Profit and Loss Sharing Ratio Should Be

question 37

Multiple Choice

The profit and loss sharing ratio should be:

• A) in the same ratio as the percentage interest owned by each partner.
• B) based on relative effort contributed to the firm by the partners.
• C) a weighted average of capital and effort contributions.
• D) based on any formula that the partners choose.

---

Definitions:

Expected-Rate-of-Return-Curve

A graphical representation showing the range of possible outcomes for the return on an investment and their associated probabilities.

Law of Diminishing Returns

An economic principle stating that if one factor of production is increased while others are held constant, the overall return will eventually decrease after a certain point.

Financing R&D

The process of providing funds for research and development activities, typically to develop new products, services, or technologies.

Marginal Cost

The extra outlay required to produce one more unit of a product or service.