Suppose That a Normal Rate of Return in the Economy

question 12

Multiple Choice

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a CORRECT prediction based on this information?

• A) New firms will want to enter this industry, as the existing firms are earning an economic profit.
• B) Firms already in the industry will want to expand to try to increase their rate of return.
• C) Firms in the industry will not undertake any investment projects other than to replace depreciating capital stock.
• D) The industry size will contract.

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Definitions:

Skill-Based

Pertaining to or focusing on the acquisition and application of practical competencies and proficiencies.

Extrinsic Rewards

Benefits provided by an employer or an external environment that motivate individuals, such as money, promotions, and praise.

Equitable

Fair or impartial treatment, ensuring equality and fairness within procedures, processes, or distribution.

Individual Needs

The specific physical or psychological desires or necessities of a person that motivate behavior towards their fulfillment.