Question

A friend tells you that he plans to open a business in which he will entertain children at birthday parties. He says he will offer a new entertainment in which he dresses up like a dinosaur, something many children love.

What do you advise him about the possible future of his business? In your answer use the concepts of economies of scale, barriers to entry, and monopolistic competition.

Answer 1

Entertaining children at the party would be a profitable business. Since such type of business has not developed enough. The demand for entertainment is rising rapidly, And further, the availability of internet has made interaction between the clients and firms easier.

It does not require a massive investment. It can be started with small investment as the equipment and other items are even available on the rent.

Such type of market exhibit the feature of monopolistic competition where many firms would enter the market if profits are there. The entry cost is minimum and thus over the long run, much profit can not be earned. But since the growth and income of people are rising, so people would not hesitate to make investment over the caring and entertainment of children. The economies of scale is also possible, as the same items or equipments can be used multiple times, thus cost would be minimum here.