Asked by KAREN NOELIA PINEDA on Jul 22, 2024
Verified
Existing firms in the rental car industry will stay in the industry but will not want to undertake any investment projects other than to replace depreciating capital stock if the normal rate of return in the industry is ________ and the return that firms earn in this industry equals exactly ________.
A) 6%; 6%
B) 4%; 7%
C) 12%; 9%
D) 1%; 2%
Normal Rate Of Return
The average or expected return on investment in a normal market condition, often considered the minimum acceptable compensation for investment risk.
Depreciating Capital
Assets that lose value over time due to wear and tear or obsolescence.
- Examine the effects of inflation and market instability on the behavior of investors.
Verified Answer
BE
Brianne ElizabethJul 27, 2024
Final Answer :
A
Explanation :
If the return that firms earn in the industry equals exactly the normal rate of return, firms have no incentive to leave the industry nor to expand significantly. They will only invest enough to maintain their current operations, which includes replacing depreciating capital stock.
Learning Objectives
- Examine the effects of inflation and market instability on the behavior of investors.