If an industry earns a return on capital in excess of its cost of capital:
A)It will soon attracts the attention of competition authorities
B)Workers will push for higher pay and benefits causing the level of profitability to fall
C)It will attract the attention of potential entrants and,unless protected by high barriers to entry,the return on capital will fall
D)Firms within the industry will over-invest causing the return on capital to fall

Question

Quizplus · Accepted Answer

An industry earning a return on capital in excess of its cost of capital will attract potential entrants, but unless there are high barriers to entry, the increased competition will lead to a fall in the return on capital.

If an Industry Earns a Return on Capital in Excess