Economies of scale act as a barrier to entry because
A)one large firm can supply the market at a higher average cost than many small firms could
B)firms are not allowed by law to sell output below average cost
C)large firms can hire inputs at a higher price than smaller firms could
D)firms will not compete with a larger firm when there are differences in marginal cost
E)one large firm can produce the market output at a lower average cost than many small firms

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that a firm achieves as it increases its level of output. As a result, one large firm can produce the market output at a lower average cost than many small firms. This cost advantage creates a barrier to entry for smaller firms because they cannot achieve the same cost efficiency and compete with the larger firm on price. Therefore, answer choice E is the best answer.

Economies of Scale Act as a Barrier to Entry Because