A firm is operating in the United States with only two other competitors in the industry. a. It is likely this industry would be characterized as: monopolistically competitive. oligopoly. pure monopoly. perfectly competitive. b. Firms in this industry will likely earn: a normal profit. an economic profit. an economic loss. c. If foreign firms begin supplying the product, increasing the number of competitors, it is likely that: normal profits will increase. economic profits will increase. economic losses will become smaller. economic profits will fall.

Which of the following statements is correct? stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock. takeovers are most likely to be attempted if the target firm’s stock price is above its intrinsic value. one advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership.