Empirical Evidence Indicates a Firm Will Have a Low Price-Earnings

question 5

Multiple Choice

Empirical evidence indicates a firm will have a low price-earnings ratio if it has

• A) positive transitory or low permanent forecasted earnings.
• B) negative transitory or high permanent forecasted earnings.
• C) negative transitory or low permanent forecasted earnings.
• D) only permanent earnings.

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Definitions:

Efficient Scale

The level of production that minimizes the average total cost of producing a product or service.

Long-Run Equilibrium

A state in which all firms in a market are making zero economic profit, leading to a situation where no firms enter or exit the industry.

Long-Run Equilibrium

A state in which all aspects of the economy, including supply and demand, are in balance, and all economic agents have fully adjusted to any changes.

Decrease in Demand

refers to a situation where consumers' desire and ability to purchase a product or service diminishes, leading to a downward shift in the demand curve.