Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms.
A) larger; smaller
B) older; newer
C) smaller; larger
D) newer; older

Question

Quizplus · Accepted Answer

Inflation can cause older firms to appear more efficient and profitable than newer firms because older firms often have acquired assets at lower historical costs. As prices rise, these older assets may not reflect current replacement costs, making the older firms' expenses appear lower and, consequently, their profits higher when compared to newer firms that have acquired assets at more recent, higher prices.

Without Adjustment, Inflation May Tend to Cause ________ Firms to Appear