If an Industry Earns a Return on Capital in Excess

Multiple Choice

If an industry earns a return on capital in excess of its cost of capital:

A) Incumbents will earn abnormal profit, and build entry barriers.
B) The government needs to make sure that competition will increase.
C) It is likely to attract the attention of firms looking to enter the industry, which may eventually lead to the return on capital falling.
D) It will attract firms outside the industry, but the incumbents will have erected entry barriers.