Which of the following statements is least true with regards to Dennis Mueller's study of profit persistence?
A)Mueller's results suggest that firms with abnormally high levels of profitability tend, on average, to decrease in profitability over time.
B)The profit rates of firms with abnormally high levels of profitability and firms with abnormally low levels of profitability will always converge to a common mean as the theory of perfect competition predicts
C)Mueller's results suggest that firms with abnormally low levels of profitability tend, on average, to experiences increases in profitability over time
D)Firms that start out with high profits converge, in the long run, to rates of profitability that are higher than the rates of profitability of firms that start out with low profits
E)Mueller's work implies that market forces are a threat to profits, but only up to a point

Question

Quizplus · Accepted Answer

Mueller's study suggests that firms with abnormally high levels of profitability tend to decrease in profitability over time, and firms with abnormally low levels of profitability tend to experience increases in profitability over time. However, the theory of perfect competition predicts that the profit rates of all firms will converge to a common mean, which may not necessarily be true in reality due to market imperfections. Therefore, statement B is least true as it is an oversimplification of the actual market dynamics.

Which of the Following Statements Is Least True with Regards