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Question
Macroeconomics
Posted 10 months ago
The market for space travel has the possibility to be very profitable, but it is also likely to be imperfectly competitive.
Which of the following is the most likely reason that the space travel industry is imperfectly competitive?
Choose 1 answer:
(A) high profits
(B) Iow minimum efficient scale relative to the size of the market
(c) low barriers to entry
(D) having no control over price
(E) high start-up costs
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Answer from Sia
Posted 10 months ago
Solution
a
Imperfect Competition: Imperfect competition occurs when market conditions do not meet the criteria of perfect competition, which includes many buyers and sellers, homogeneous products, and no barriers to entry or exit
b
High Start-up Costs: High start-up costs can create barriers to entry, limiting the number of firms that can enter the industry. This can lead to imperfect competition as it restricts the market to a few firms with the financial resources to compete
c
Answer Choice Analysis:
- (A) High profits are a result, not a cause, of imperfect competition.
- (B) A low minimum efficient scale relative to the market size would suggest more firms can enter, leading to more competition, not less.
- (C) Low barriers to entry would lead to a more competitive market, not an imperfect one.
- (D) Having no control over price is characteristic of perfect competition, not imperfect competition.
- (E) High start-up costs can deter new firms from entering the market, leading to fewer competitors and imperfect competition
Answer
(E) high start-up costs
Key Concept
Barriers to Entry in Imperfect Competition
Explanation
High start-up costs act as a barrier to entry in a market, leading to imperfect competition as they prevent potential competitors from entering the industry.
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