Entrepreneurs face a fixed cost to found new firms. When this cost is amortized,the expected returns to founding a firm are _____ in a larger market than in a smaller market.

Question

Quizplus · Accepted Answer

The fixed cost of founding a new firm is the same regardless of the market size, which means that the cost per unit of output will be lower in a larger market than in a smaller market. This lower cost structure will allow the entrepreneur to potentially earn higher profits in a larger market, making the expected returns greater.

Entrepreneurs Face a Fixed Cost to Found New Firms