Gilroy Crackers enjoys a competitive advantage as a cost leader because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of Gilroy Crackers?

Question

Quizplus · Accepted Answer

Operating at the minimum efficient scale means that Gilroy's level of output allows it to stake out the lowest-cost position that is achievable through economies of scale. If a firm's cost advantage is due to economies of scale, a manager should worry about drops in production runs. By shutting down production for several days, Gilroy's output may fall to the point where per-unit costs start to rise.

Gilroy Crackers Enjoys a Competitive Advantage as a Cost Leader