Michelle owns the largest florist shop in her town. Each week, she orders a truckload of flowers from the flower wholesaler. The other two florists in town order only one-third as many flowers. Because Michelle's order fills the delivery truck, the wholesaler sells flowers to her at a lower price than the other florists must pay. How will this situation impact potential new entrants?
A)New florists will be encouraged to enter because they will be energized by the challenge to succeed.
B)The cost differential can easily be offset by creating a demand differential, so it will have little impact.
C)New florists will not be affected because input prices are minor factors in markets.
D)New florists will be discouraged from entering the market because of the difficulty of competing on cost.

Question

Quizplus · Accepted Answer

The situation of Michelle's shop being able to purchase flowers at a lower price because of her large order volume puts potential new florists at a disadvantage in terms of cost competitiveness. New entrants will likely struggle to compete on cost with Michelle's established business, making it difficult for them to gain market share. This may discourage potential new entrants from entering the market.

Michelle Owns the Largest Florist Shop in Her Town