Economy of Scale

CFA Level I Economics
#1

Hello everyone,

I am doing Schweser Qbank. And for some reason I can not get explanation of this question. Why Economy of Scale is government licensing?

Why am i wrong?

Which of the following is least likely a barrier to entry?

A) Patents. B) Allocative Efficiency. C) Economies of Scale.

Your answer: C was incorrect. The correct answer was B) Allocative Efficiency.

The other barriers to entry are government licensing and legal barriers such as utilities are given the exclusive right to supply electricity in certain areas.

#2

I think that you’re misinterpreting their explanation.

Barriers to entry include:

  • Patents, copyrights, and any other legal protection against competing
  • Economies of scale: new entrants cannot match the pricing structure of existing firms with large-scale operations
  • Government licensing: potential new entrants cannot compete if they’re not licensed
  • Other legal barriers, such as exclusive rights for supply
#3

Thank you, S2000magican.

Got it.

#4

My pleasure.