Corporate funeral homes have replaced small family run funeral homes in many areas, in large part...

Corporate funeral homes have replaced small family run funeral homes in many areas, in large part because of the lower costs they receive.
1. What kind of economies of scale exists in the funeral business?
2. Why doesn't someone build one colossal funeral home and drive costs further down?

Expert Solution

Answer:- We know that firms enter in that market where they can earn super normal profit, otherwise they will not be interested to enter and start a new business. So in this case we can also say that in funeral business total revenue is higher than total cost for a particular firm. Now since corporate funeral firms can produce much higher than small funeral homes they will enjoy internal and external economies of scale, they will get advantage in getting loan (Since they have higher assets) etc. So considering all this things we can say that with increasing output and decreasing cost firms are facing increasing economies of scale.
Since firms are earning supernormal profit (i.e. profit grater than 0) many other firms show interest in this industry and they start production so monopoly is not possible for this kind of profitable business. Besides that initial fixed cost to set funeral home is higher so no one wants to incurr this huge cost, State may be not interested to make monopoly funeral industry so their might be some laws to prevent monopoly.
Thank You

Rahul Sunny answered 2 years ago

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