factors determining no. of firms in an industry (3)

Question 1

microeconomic factors determining the number of firms in an industry

Answer 1

1. barriers to entry: 🔹 e.g. capital costs, technology, economies of scale → fewer firms can afford to enter the market → low number of firms in the industry e.g. monopoly + oligopoly -> limited competition due to high entry costs (e.g., aviation industry where large capital investments and regulatory hurdles limit new competitors) -> risk of oligopoly behaviour
   OTHER FACTORS:
   - regulation/deregulation
   * privatisation/nationalisation
   * market power

Question 2

evaluate the micro factors determining the no. of firms in an industry

Answer 2

• depends on the industry
• depends on LRAC and size of minimum efficient scale
• market saturation may limit entry
• technology can lower barriers
• gov. support can help

Question 3

macro factors determining the no of firms in an industry

Answer 3

1. eco. growth through gov. policy -> e.g. the gov. may choose to cut taxes (e.g. income/ corporate) -> more disposable income = more consumption; more retained profits = more investment = incr AD -> real GDP up -> +ve multiplier effect -> incr demand for goods + services = attracts more firms into the market
2. incr regulatory bodies -> lowers no. of firms
3. supply-side policies -> e.g. infrastructure -> lower transport costs -> firms can benefit from external economies of scale

Question 4

evaluate the macro factors determining the no. of firms in an industry

Answer 4

• if inflation is high, costs may rise -> if firms unable to raise prices -> may shut down/leave market
• depends on business confidence -> people may not spend/invest -> limited growth