Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs
Indicate whether the statement is true or false
False. The advantage is to the incumbent. The incumbent ignores the fixed entry cost since it is a sunk cost. For the potential entrant, the fixed entry cost can be avoided if entry does not occur. Thus the fixed entry cost is an added expense to entrants.
You might also like to view...
A firm's efforts to increase profit by price discrimination can be undermined by
A) consumer ignorance. B) differences in elasticity of demand. C) arbitrage by buyers. D) seller market power.
Supply-side economics is based on the theory that:
A. budget deficits will stimulate demand, output, and employment. B. budget deficits will lead to higher interest rates, which will weaken their expansionary impact. C. higher tax rates will increase tax revenues. D. increases in aggregate supply lower the price level.
If you are a sole proprietor of a firm and you do not pay yourself a regular wage, then the value of the wage you could have earned elsewhere is
A. an explicit cost. B. an accounting cost. C. an implicit cost. D. not a cost.
When the government restricts the quantity of a good to zero
A. people's demand for the product evaporates. B. there is none of the good available anywhere. C. an underground market develops. D. producers stop all production.