Question from Past Microeconomics Qualifying ExamEdit
Spring 2004 - Section I, Question five, George Mason University
State first whether the following statement is true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.
In an industry exhibiting constant returns to scale, the number of firms is path dependent, determined by the history of the industry rather than by the nature of demand and the competitive pressure to minimize costs.
Constant Returns to Scale does not imply that there would be major advantages to large firm participation (relative to the size of the market). This does not imply anything about Fixed Costs, so depending on whether we are disscussing an industry with high fixed costs there may be some aspect of a Natural Monopoly involved. In contrast, low fixed costs might imply a competitive solution.
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