Question

Which of the following factors is most likely to restrict the entry of potential competitors into a market?

Select one or more:

a. economies of scale.

b.

elastic market demand curve for the product.

c. a lack of patent protection for the new entrant.

d. all of the above.

Answer 1

Economics of scale- which are mainly acquired by large firms due to their size and which helps them to maintain a fixed cost. As the time goes they achieved the potential to decrease the firm’s output cost and can decrease the fixed price according to the market demand- certainly creates a barrier of other firms to entry.

Elastic market demand curve for the product- when the prices of goods and services depends on the consumer’s demand. Actually it depend on the Firm’s production capacity, Long-lastingness of the product, elasticity of the product etc. Which depends upon the firms internal capacity, can’t be considered a barrier of the firm to entry into market.

Patent Protection- The owner when gets the exclusive right to sell any product. Patent protection that the product can’t be commercially made- definitely it plays a big role for a competitor to enter into the market. Lack of which a competitor can enter but can’t maximize profit.

So here Economics of scale plays the key role of barrier.