Suppose that the normal rate of return in the inkjet printer industry is 10% and the return being earned by firms in this industry equals exactly 5%. Which of the following is likely to follow from this scenario?
A. The normal rate of return will fall to 5% in the long run.
B. Firms will want to leave the industry.
C. New firms will want to enter the industry.
D. Firms will collude to keep competition out.
Answer: B
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Suppose the U.S. interest rate is 6 percent and the world interest rate is 5 percent. The U.S. interest differential is
A) -1 percent. B) 1.2 percent. C) 1 percent. D) -0.83 percent.
A bank is insolvent when
A) its liabilities exceed its assets. B) its assets exceed its liabilities. C) its capital exceeds its liabilities. D) its assets increase in value.
In the presence of asymmetric information, a fixed-fee contract
A) achieves production efficiency. B) can lead to opportunistic behavior on the part of the agent. C) is impossible to write. D) will result in the principal earning all of the profit.
In order to survive, cartels must be able to enforce contracts. However, when a cartel is trading in an illegal commodity:
a. it can use the judicial system to enforce contracts. b. it relies on altruism of members to enforce contracts. c. it is inherently stable because the market is underground. d. violence becomes a means of contract enforcement. e. authorities are effective in preventing the trade.