The following quotation appeared in a Wall Street Journal article on the battle
ID: 1208704 • Letter: T
Question
The following quotation appeared in a Wall Street Journal article on the battle for market share in the automobile industry in 2000: “The huge fixed costs involved in developing new vehicles and running big auto factories means auto makers feel compelled to maintain-or expand-market share. Losing share long term could mean shutting down factories, or running factories at unprofitable rates.” Do these statements support economic theory and show that economies of scale do not benefit a firm if the output level is small? Please explain.
Explanation / Answer
The statement supports economic thoery. It shows that economies of scales do not benefit a firm if the output level is small. It is true because when the demand is more it shows increase in supply. It tends to create revenues for firms who sell their product in the market.
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