Which of the following would most likely occur in a market with high start-up costs?

Choose 1 answer:
(A) few firms and price lower than marginal revenue
(B) many firms earning economic losses
(c) few firms with a price equal to marginal cost
(D) many firms and prices lower than marginal revenue
(E) fewer firms and prices higher than marginal cost

Question

Which of the following would most likely occur in a market with high start-up costs?

Choose 1 answer:
(A) few firms and price lower than marginal revenue
(B) many firms earning economic losses
(c) few firms with a price equal to marginal cost
(D) many firms and prices lower than marginal revenue
(E) fewer firms and prices higher than marginal cost

Accepted Answer

∻Solution∻ ‖ a ⋮ High Start-Up Costs: High start-up costs create significant barriers to entry in a market. This means that only a few firms can afford to enter the market. ‖ ‖ b ⋮ Price and Marginal Cost: In a market with few firms, prices are often set above marginal cost to cover the high fixed costs associated with entry. ‖ ‖ c ⋮ Market Outcome: Given the high start-up costs, the most likely outcome is fewer firms in the market with prices higher than marginal cost. ‖ ∻Answer∻ ⚹ E: fewer firms and prices higher than marginal cost ⚹ ∻Key Concept∻ ⚹ Barriers to Entry ⚹ ∻Explanation∻ ⚹ High start-up costs act as a barrier to entry, limiting the number of firms that can enter the market. This results in fewer firms operating in the market, and these firms often set prices above marginal cost to cover their high fixed costs. ⚹◊What impact do high start-up costs have on the number of firms in a market according to microeconomics theory?⍭ Generate me a similar question◊

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