Suppose that minimum efficient scale is approximately 20 percent of maximum potential market demand.In that case,
A)there will be approximately 20 firms in the market
B)we should expect to see a few large competitors
C)we should expect to see many small competitors
D)we should expect a natural monopoly to emerge
E)minimum efficient scale is too small for perfect competition to exist

Question

Quizplus · Accepted Answer

If minimum efficient scale is approximately 20 percent of maximum potential market demand, then firms will need to produce at least that amount in order to be efficient. This usually means that a few large competitors will be able to capture the majority of the market share, as they can produce at the minimum efficient scale or greater. This is because smaller firms will not be able to compete on price or efficiency, and will not be able to capture significant market share. Therefore, we should expect to see a few large competitors in the market.

Suppose That Minimum Efficient Scale Is Approximately 20 Percent of Maximum