In many modern market economies, several key industries are highly concentrated and dominated by a few dominant players. Which of the following provides the most likely explanation for this high level of market concentration?
In these sectors,
as firms expand their scale of production, they are able to exploit technical economies of scale that significantly lower their average costs, creating a barrier to entry.
small-scale producers are highly likely to benefit from financial economies of scale, allowing them to secure cheaper investment capital than larger competitors.
as the total output of the sector increases, the division of labour breaks down, causing productivity to fall across all surviving firms.
large firms are forced to raise prices because their massive administrative structures lead to a permanent reduction in their minimum efficient scale.
156 exam-style questions on AQA A Level Economics 1.4 Production, costs and revenue, covering 1.4.1 Production and productivity, 1.4.2 Specialisation, division of labour and exchange, 1.4.3 The law of diminishing returns and returns to scale (A-level only), 1.4.4 Costs of production, 1.4.5 Economies and diseconomies of scale, 1.4.6 Marginal, average and total revenue, 1.4.7 Profit, and 1.4.8 Technological change (A-level only). Each one has a worked solution and a mark scheme showing where the marks go.