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Question 3. Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are...

Question 3. Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times the quantity produced at the bottom of the long-run average cost curve. What do you expect will happen to the domestic auto industry in the long run?

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Answer #1

SOLUTION:-

Here we know that economies of scale is the situation where the Quantity of output goes up and the cost per unit of input goes down.

So here we know that there is only demand enough for 2.5 times firms to reach the buttom of the average cost curve so here we would expected that one firm will not be around in long-run and minimum at least One (1) firm is struggling.

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