Industy and Company Analysis

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Joined: Mon Nov 26, 2012 12:51 pm

Industy and Company Analysis

Postby sahiljindal1990 » Mon Nov 26, 2012 6:18 pm

Which of the following conditions is most likely to indicate that barriers to entry into an industry are low?

A) The industry has significant economies of scale.

B) Market shares have been stable over the last two business cycles.

C) Investment capital is available at low cost.

Answer:The Answer to this question was C but I marked it as A.
As per My understanding When barriers are low AC is decreasing which means Economies of Scale
Tell me whether I am thinking right or wrong..


Posts: 8
Joined: Sun Jun 24, 2012 8:00 pm

Re: Industy and Company Analysis

Postby sujithmeno » Tue Nov 27, 2012 10:52 pm

The option c seems to be the most likely, because economies of scale means the firms exist in an industry are operating with a low-cost model due to their effective investment, operating efficiency & experience that they acquired in the long-run scenario. This should be a put off for the new entrants.
In short, economies of scale are attained in the long run.

Among the options, availability of low cost funds is a more likely incentive for new entrants so that their investment return is more likely to keep them in a positive NPV territory.

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