Question

The managers at Camphor Plastics decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector

A. by having higher performance in another sector
B. by increasing the firm's risk in another sector
C. by motivating managers
D. by sharing their market power

Answer 1

The correct answer is A

Step-by-step explanation:

Diversify is the term which is the procedure of allocating the capital in a method so that it could reduce the exposure to any specific risk or an asset.

In short, it means a path towards the diversification so to decrease the volatility or risk through investing in different assets.

So, in this case, the managers diversify as the sales is falling and there is lower performance in one sector. Therefore, diversify compensate the lack of performance in this sector through having higher performance in another sector.