ACCA Applied Knowledge · Business and Technology · Competitive factors
Which of the following is a barrier to entry that protects existing firms in an industry from new competitors?
Significant economies of scale enjoyed by existing firms is a barrier to entry, because incumbents have lower unit costs that newcomers struggle to match. Low capital requirements and easy switching lower barriers and encourage entry.
- ALow capital requirements
- BSignificant economies of scale enjoyed by existing firmsCorrect
- CUndifferentiated products with easy switching
Explanation
Economies of scale give incumbents lower unit costs that new entrants find hard to match, forming a barrier. Low capital needs and easy switching make entry easier.
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