Question

Which of the following would be considered an economically justified barrier to entry?

a. Government sanctioned barriers.

b. Pioneering brand name advantages.

c. Various pricing policies.

d. Reputation effects.

e. Economies of scale.

Please explain. At first I thought it was A (like copyrights and such I assume) but then perhaps it is pioneering brand name advantage. Can any assist?

Answer 1

Answer.) e. Economies of scale.

Economies of scale are an important aspect of efficiency in production. Economies of scale can be defined as
the reduction in average costs of production that occur as a business increases its scale of production. As businesses grow and their output increases, they commonly benefit from a reduction in average costs of
production. Total costs will increase as output increases. However, the cost of producing each unit falls as
output increases. This fall in average costs as output increases indicates that a business is benefitting from
economies of scale. This reduction in average costs is what gives larger businesses a competitive advantage
over smaller businesses.