Assume that the minimum efficient scale for a typical firm in an industry is 2 million units. The estimated output for the whole industry is 6 million units. Therefore, one can conclude that:
A) the industry is a natural monopoly.
B) the output produced in the industry is less than the perfectly competitive output.
C) the industry experiences increasing returns to scale.
D) the industry is likely to support 3 firms, each producing at minimum efficient scale.
E) the price in the industry is higher than the perfectly competitive price.

Question

Quizplus · Accepted Answer

Given the minimum efficient scale of 2 million units per firm and a total industry output of 6 million units, the industry can support 3 firms operating at their minimum efficient scale. This does not necessarily imply a natural monopoly, increasing returns to scale across the industry, or conclusions about price relative to perfect competition.

Assume That the Minimum Efficient Scale for a Typical Firm