Which of the following statements is true?
A) Network effects act as barriers to entry in a market.
B) Economies of scale act as incentives for new firms to enter a market.
C) If a firm is enjoying economies of scale, then its product must have network effects.
D) If a firm's product has network effects, then the firm must be enjoying economies of scale.

Question

Quizplus · Accepted Answer

Network effects occur when the value of a product or service increases as the number of users increases. This creates a barrier to entry for new firms as they struggle to attract users away from established firms. Thus, network effects act as barriers to entry in a market. Option B is incorrect because economies of scale refer to the cost advantages that a firm enjoys as it increases production, and this alone does not act as an incentive for firms to enter a market. Option C and D are incorrect because network effects and economies of scale are not interdependent, and one can exist without the other.

Which of the Following Statements Is True