In a theoretical paper, Williams (1995) develops a model of industry e

In a theoretical paper, Williams (1995) develops a model of industry equilibrium that incorporates agency costs due to both creditor-shareholder and management-shareholder conflicts.

His model has implications for the distribution of firms within an industry in equilibrium. Which of the following statements correctly describes Williams’ depiction of industry equilibrium?
a. Each industry has a core of large, profitable, secure, capital-intensive firms, each with at least some external debt, and a competitive fringe of small, marginally profitable or unprofitable, risky, labor-intensive firms.
b. All firms in an industry will ultimately be large, labor-intensive firms with large proportions of debt in their capital structures.
c. All firms in an industry will ultimately be small, capital-intensive firms with no debt.
d. All firms in an industry will ultimately be large, capital-intensive firms with large proportions of debt in their capital structures.

ANSWER

A