A FIRM Faces an Almost Perfectly Flat or Horizontal Demand

question 27

Multiple Choice

A FIRM faces an almost perfectly flat or horizontal demand curve in a(an) ______________ market situation.

• A) monopolistic competition
• B) monopoly
• C) pure competition
• D) oligopoly
• E) None of the above--demand curves are always down-sloping.

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Definitions:

CAPM

The Capital Asset Pricing Model, a theory used to determine the expected return on investment based on its inherent risk and the cost of capital.

Expected Return

The anticipated profit or loss from an investment based on its potential risks and rewards.

SML

The Security Market Line (SML) represents the relationship between the expected return of a market security and its risk, measured by beta, within the Capital Asset Pricing Model (CAPM).

Market Portfolio

A theoretical bundle of investments that includes every type of asset available in the market, with each asset weighted by its total market capitalization.