Which one of the following is a natural barrier to firms entering an industry?

Question

Quizplus · Accepted Answer

A negatively sloped LRAC curve over the whole range of output indicates that existing firms have cost advantages over potential entrants, making it difficult for them to compete. This is a natural barrier to entry. Decreasing returns to scale can also act as a barrier, but this is not a natural barrier as it arises due to the firm's own production decisions. A positively sloped LRAC curve indicates diseconomies of scale, which can also act as a barrier, but this is not a natural barrier either. Threats of punitive price-cutting by existing producers and licensing and patent restrictions are external barriers to entry.

Which One of the Following Is a Natural Barrier to Firms