The existence of economies of scale is one reason oligopolies exist because
A) a firm is able to increase price leading to increased profits.
B) the marginal cost decreases as output increases.
C) of strategic dependence.
D) as output increases average total cost decreases leading to large-scale firms.

Question

Quizplus · Accepted Answer

As output increases, the fixed costs can be spread over a larger number of units, leading to a decrease in the average total cost. This is called economies of scale. Large-scale firms can achieve lower average costs than their smaller competitors, making it difficult for smaller firms to compete. Therefore, the existence of economies of scale is one reason why there are oligopolies in many industries.

The Existence of Economies of Scale Is One Reason Oligopolies