Competition works to drive down the rate of return on invested capital toward the rate that would be earned in a perfectly competitive industry.

Question

Quizplus · Accepted Answer

This statement is true. In a competitive market, companies are forced to keep their prices low to attract customers, which in turn reduces their profits and rate of return on invested capital. This competition among firms helps to drive down returns towards the level that would be earned in a perfectly competitive industry.

Competition Works to Drive Down the Rate of Return on Invested