The coordination failure model is based on the possibility of increasing returns to scale
A) both at the aggregate level and at the level of the individual firm.
B) at the aggregate level, but not at the level of the individual firm.
C) at the level of the individual firm, but not at the aggregate level.
D) in future periods, but not in the current period.
E) in both current and future periods.

Question

Quizplus · Accepted Answer

The coordination failure model emphasizes the importance of increasing returns to scale at the aggregate level, but assumes constant or decreasing returns to scale at the level of the individual firm. This is because coordination failures arise when multiple firms need to coordinate their production decisions in order to achieve economies of scale and increase their viability, but fail to do so because of the absence of a coordinating mechanism. Thus, the model highlights the need for collective action and coordination among firms to generate increasing returns to scale at the aggregate level.

The Coordination Failure Model Is Based on the Possibility of Increasing