Firms will not have both relatively high profit margins and total asset turnover for long periods of time because
A) if both variables are relatively high,more firms will be attracted into the industry,which will result in lower profit margins.
B) excess economic profits will result (until equilibrium is restored).
C) high profit margins result in inefficiency.
D) a and b.
E) a and c.

Question

Quizplus · Accepted Answer

If both profit margins and total asset turnover are high, more firms will be attracted into the industry, which will result in increased competition and lower profit margins. This will eventually lead to excess economic profits, until equilibrium is restored. Therefore, firms cannot sustain both relatively high profit margins and total asset turnover for long periods of time. Additionally, high profit margins may result in inefficiency, further reducing the ability of firms to maintain their performance in the long run.

Firms Will Not Have Both Relatively High Profit Margins and Total