Question

If an industry is characterized by very large firms then it is likely to have __________.

• A. economics of scale and decreasing costs
• B. diseconomies of scale and increasing costs
• C. constant costs
• D. perfect competition

Answer 1

The correct option is A economics of scale and decreasing costs

As the industry grows in size, firms experience external economies of scale, such as greater access to experienced labour and greater negotiation powers with suppliers etc. This will allow the firm to experience falling average costs.