Competition in an industry continually works to drive up the rate of return on assets towards the competitive ceiling.

Question

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Competition in an industry works to drive down the rate of return on assets towards the competitive floor, as companies compete to offer lower prices, better quality, or differentiated products. The competitive ceiling represents the maximum rate of return that can be earned in the industry, and it is typically higher than the actual rate of return achieved by most firms in the long run.

Competition in an Industry Continually Works to Drive Up the Rate