Given the structure of the automobile industry, entering the auto manufacturing industry seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche?
A) network effects
B) economies of scale
C) customer switching costs
D) capital requirements

Question

Quizplus · Accepted Answer

Tesla is hoping to benefit from economies of scale in this market niche. Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

Given the Structure of the Automobile Industry, Entering the Auto