Suppose the production of helicopters is an industry characterized by increasing returns to scale and an Argentine firm,Cicare,is the only player in this market.The firm caters to the global market and earns a profit of $10 million.Flettner,a German firm has been considering entering this market for a while,but it is aware that its entry will cause each firm to lose about $4 million.However,a government subsidy allows Flettner to enter the helicopter market and Cicare incurs a loss of $4 million due to its entry.Eventually,Flettner evolves as the monopoly supplier of helicopters while Cicare is forced to shut down.This conclusion rests on which of the following assumptions?

Question

Quizplus · Accepted Answer

The scenario presented in the question assumes that Flettner is able to enter the helicopter market due to a government subsidy. Therefore, the most significant assumption for the conclusion that Flettner will be able to drive out Cicare is that the German government was able to accurately forecast the amount of subsidy required to induce Flettner to produce helicopters. This assumption is necessary because if the government had miscalculated the subsidy amount, Flettner may not have been able to sustain its operations, and Cicare may have continued to dominate the market. The other answer choices are not relevant to the scenario presented in the question.

Suppose the Production of Helicopters Is an Industry Characterized by Increasing