A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to
A) minimize its average cost of production.
B) establish a credible deterrent to the entry of competing firms.
C) take advantage of a dominant strategy in a prisoners' dilemma.
D) attain a Nash equilibrium and avoid repeated games.

Question

Quizplus · Accepted Answer

Increasing scale to have excess production capacity can serve as a deterrent to potential competitors, signaling that the firm can lower prices or increase output if needed to maintain its market position. This strategy can discourage new entrants from competing.

A Firm May Decide to Increase Its Scale So That