economies of scale associated with marketing, R&D, and purchasing.
What is the difference between economies of scale and learning economies?
If a larger firm has
lower average costs, can you conclude that it benefits from economies of scale?
Would a small
firm necessarily enjoy the same cost position if it were to duplicate the size of its larger rival
A firm contemplating entering the market would need to invest $100 million to build a mini-
mum efficient scale production plant (or about $10 million annually on an amortized basis).
Such a plant could produce about 100 million pounds of cereal per year.
What would be the av-
erage fixed costs of this plant if it ran at capacity? Each year, U.S. breakfast cereal makers sell
about 3 billion pounds of cereal.
What would be the average fixed costs if the cereal maker cap-
tured a 2 percent market share?
What would be the disadvantage if it achieved only a 1 percent
share? If prior to entering the market, the firm contemplates achieving only a 1 percent share,
is it doomed to such a large cost disparity?