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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

People often believe that large firms in an industry have cost advantages over small firms in the same industry. For example, they might think that a big oil company has a cost advantage over a small oil company. For this to be true, however, what condition must exist? Explain your answer.

To determine

Explain the cost advantage of large firm over the small firm.

Explanation

Figure 1 shows the range of economies of scale, constant returns to scale and diseconomies of scale.

In Figure 1, the vertical axis measures the average total cost and the horizontal axis measures the quantity of output...

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