Table: Profit Margins \[\begin{array} { l r r r r r r r r }
\hline \text {Industry }& \begin{array} { l }
\text { 1 Day Market } \
\text { Change \% }
\end{array} & \text { Cap } & \text { P/E } & \text { RDE \% } & \begin{array} { l }
\text { Div, } \
\text { Yield \% }
\end{array} & \begin{array} { l }
\text { Long-Term } \
\text { Debt to } \
\text { Equity }
\end{array} & \begin{array} { l }
\text { Price to } \
\text { Book }
\end{array} & \begin{array} { l }
\text { Net Profit } \
\text { Margin } \
\% ( \text { meg) }
\end{array} \
\hline \begin{array}{l}
\text { Closed-end fund } \
\text {-Equity }
\end{array} & -0.25 & 46.0 \mathrm{~B} & 0.00 & 0.00 & 3.70 & 29.23 & -1392.53 & 64.30 \
\begin{array}{l}
\text { Publishing- } \
\text { periodicals }
\end{array} & -1.49 & 23.1 \mathrm{~B} & 21.00 & 27.00 & 5.13 & 10.83 & 8.32 & 52.90\
\text { Closed-end fund } & & & & & & & & \
\text { - Foreign } & 0.77 & 18.1 \mathrm{~B} & 13.90 & 3.70 & 2.45 & 16.90 & 0.48 & 38.30 \
\text { Silver } & 0.44 & 67.8 \mathrm{~B} & 33.30 & 11.10 & 0.26 & 45.16 & 3.74 & 35.10 \
\text { REIT-diversified } & 0.00 & 1919.2 \mathrm{~B} & 0.00 & 11.10 & 6.46 & 69.94 & 1.67 & 35.00 \
\text { Copper } & 0.37 & 209.6 \mathrm{~B} & 19.00 & 26.70 & 2.24 & 31.69 & 3.64 & 23.50 \
\text { Application software } & -0.32 & 629.8 \mathrm{~B} & 18.30 & 24.40 & 1.46 & 33.86 & 11.62 & 22.70 \
\text { Gold } & 0.18 & 2082.0 \mathrm{~B} & 24.50 & 9.70 & 0.96 & 10.90 & 2.55 & 22.00\
\text { Internet information } & -0.95 & 380.6 \mathrm{~B} & 35.00 & 13.70 & 1.19 & 8.04 & 5.47 & 21.30 \
\text { providers } & 0.45 & 310.9 \mathrm{~B} & 16.00 & 73.40 & 4.90 & 209.37 & -8.30 & 20.20\
\text { Industrial metals } \
\text { and minerals }&1.70 & 44067.8 \mathrm{~B} & 20.50 & 19.00 & 1.88 & 27.41 & 4.58 & 19.90\
\text { REIT-Healthcare}\
\text {Facilities }&0.21 & 51.6 \mathrm{~B} & 49.30 & 3.90 & 4.47 & 97.94 & 2.10 & 19.80\
\text { Semiconductor- } \
\text { broad line }& 2.53 & 1175.3 \mathrm{~B} & 11.80 & 23.30 & 2.60 & 26.17 & 3.75 & 19.10 \
\text {Semiconductor- }\
\text { integrated circuits}&-1.23 & 155.2 \mathrm{~B} & 15.50 & 18.70 & 2.59 & 17.24 & 3.46 & 18.80\
\begin{array}{l}
\text { Foreign utilities } \
\text { Diversified } \
\text { investments }
\end{array} & -0.56 & 46.6 \mathrm{~B} & 11.40 & 24.20 & 3.53 & 76.36 & 36.49 & 17.00 \
& -0.52 & 120.1 \mathrm{~B} & 23.70 & 10.30 & 2.29 & 449.96 & 1.93 & 16.90
\end{array}\] This table shows that silver, copper, and gold were some of the most profitable industries in July 2011. (For each dollar of sales, profit for these industries is 35.1, 23.5, and 22.0 cents, respectively.) According to the elimination principle, what do you expect to happen to these profit margins in the long run?
A) Profit margins will increase because of increased entry.
B) Profit margins will increase because of increased exit.
C) Profit margins will decrease because of increased entry.
D) Profit margins will decrease because of increased exit.

Question

Table: Profit Margins \[\begin{array} { l r r r r r r r r } 
\hline \text {Industry }& \begin{array} { l } 
\text { 1 Day Market } \
\text { Change \% }
\end{array} & \text { Cap } & \text { P/E } & \text { RDE \% } & \begin{array} { l } 
\text { Div, } \
\text { Yield \% }
\end{array} & \begin{array} { l } 
\text { Long-Term } \
\text { Debt to } \
\text { Equity }
\end{array} & \begin{array} { l } 
\text { Price to } \
\text { Book }
\end{array} & \begin{array} { l } 
\text { Net Profit } \
\text { Margin } \
\% ( \text { meg) }
\end{array} \
 \hline \begin{array}{l}
\text { Closed-end fund } \
\text {-Equity }
\end{array} & -0.25 & 46.0 \mathrm{~B} & 0.00 & 0.00 & 3.70 & 29.23 & -1392.53 & 64.30 \
\begin{array}{l}
\text { Publishing- } \
\text { periodicals }
\end{array} & -1.49 & 23.1 \mathrm{~B} & 21.00 & 27.00 & 5.13 & 10.83 & 8.32 & 52.90\
\text { Closed-end fund } & & & & & & & & \
\text { - Foreign } & 0.77 & 18.1 \mathrm{~B} & 13.90 & 3.70 & 2.45 & 16.90 & 0.48 & 38.30 \
\text { Silver } & 0.44 & 67.8 \mathrm{~B} & 33.30 & 11.10 & 0.26 & 45.16 & 3.74 & 35.10 \
\text { REIT-diversified } & 0.00 & 1919.2 \mathrm{~B} & 0.00 & 11.10 & 6.46 & 69.94 & 1.67 & 35.00 \
\text { Copper } & 0.37 & 209.6 \mathrm{~B} & 19.00 & 26.70 & 2.24 & 31.69 & 3.64 & 23.50 \
\text { Application software } & -0.32 & 629.8 \mathrm{~B} & 18.30 & 24.40 & 1.46 & 33.86 & 11.62 & 22.70 \
\text { Gold } & 0.18 & 2082.0 \mathrm{~B} & 24.50 & 9.70 & 0.96 & 10.90 & 2.55 & 22.00\
\text { Internet information } & -0.95 & 380.6 \mathrm{~B} & 35.00 & 13.70 & 1.19 & 8.04 & 5.47 & 21.30 \
\text { providers } & 0.45 & 310.9 \mathrm{~B} & 16.00 & 73.40 & 4.90 & 209.37 & -8.30 & 20.20\
\text { Industrial metals } \
\text { and minerals }&1.70 & 44067.8 \mathrm{~B} & 20.50 & 19.00 & 1.88 & 27.41 & 4.58 & 19.90\
\text { REIT-Healthcare}\
\text {Facilities }&0.21 & 51.6 \mathrm{~B} & 49.30 & 3.90 & 4.47 & 97.94 & 2.10 & 19.80\
\text { Semiconductor- } \
\text { broad line }& 2.53 & 1175.3 \mathrm{~B} & 11.80 & 23.30 & 2.60 & 26.17 & 3.75 & 19.10 \
\text {Semiconductor- }\
\text { integrated circuits}&-1.23 & 155.2 \mathrm{~B} & 15.50 & 18.70 & 2.59 & 17.24 & 3.46 & 18.80\
\begin{array}{l}
\text { Foreign utilities } \
\text { Diversified } \
\text { investments }
\end{array} & -0.56 & 46.6 \mathrm{~B} & 11.40 & 24.20 & 3.53 & 76.36 & 36.49 & 17.00 \
& -0.52 & 120.1 \mathrm{~B} & 23.70 & 10.30 & 2.29 & 449.96 & 1.93 & 16.90
\end{array}\] This table shows that silver, copper, and gold were some of the most profitable industries in July 2011. (For each dollar of sales, profit for these industries is 35.1, 23.5, and 22.0 cents, respectively.) According to the elimination principle, what do you expect to happen to these profit margins in the long run?
A) Profit margins will increase because of increased entry.
B) Profit margins will increase because of increased exit.
C) Profit margins will decrease because of increased entry.
D) Profit margins will decrease because of increased exit.

Quizplus · Accepted Answer

In the long run, high profit margins attract new entrants to the market, increasing competition and leading to a decrease in profit margins.

Table: Profit Margins This Table Shows That Silver, Copper, and Gold Were Some