Economies of scale are a barrier to entry because:
A)New entrants do not know where they are positioned on their learning curve
B)New entrants do not know the economies they can generate in the future and therefore cannot precisely determine their selling price
C)New entrants face a risk of retaliation from the incumbents which could occur immediately on a large scale and start a price war as a deterrent of their entry
D)New entrants face the cost and risk of creating large scale capacity to start with or a severe cost disadvantage if they enter on a smaller scale

Question

Quizplus · Accepted Answer

Economies of scale mean that larger firms can produce goods at a lower cost than smaller firms, creating a cost advantage. New entrants may face the cost and risk of creating large scale capacity to compete with established firms, or they may only be able to enter on a smaller scale, which puts them at a severe cost disadvantage. This can be a significant barrier to entry, as it can be challenging for new entrants to compete with established firms that have already achieved economies of scale.

Economies of Scale Are a Barrier to Entry Because