The coordination failure model is based on the possibility of increasing returns to scale
A) both at the aggregate level and at the level of the individual firm.
B) at the aggregate level, but not at the level of the individual firm.
C) at the level of the individual firm, but not at the aggregate level.
D) in future periods, but not in the current period.
E) in both current and future periods.

Question

Quizplus · Accepted Answer

The coordination failure model is based on the possibility of increasing returns to scale at the aggregate level, but not necessarily at the level of the individual firm. The model suggests that multiple equilibria can exist due to coordination failure, where firms choose a particular production level based on the expectations of what other firms will do. In situations where firms face larger externalities or network effects, increasing returns to scale at the aggregate level can lead to coordination failure and suboptimal outcomes. However, this does not imply that individual firms also experience increasing returns to scale.

The Coordination Failure Model Is Based on the Possibility of Increasing