Answer to Question #132646 in Macroeconomics for Mahfuz

Question

How can governments play a role in promoting knowledge based industries in which fixed costs are high and marginal costs are close to zero? With an appropriate example.

Answer 1

To promote knowledge based industries , The government can give concession or monopoly power for some period of time.

Alternatively, the government can invest in fixed cost and allow the private sector to invest in variable cost for a specific period of time.

For example in developing countries where they lack expertise for instance in mining industry(oil extraction or exploration), The government may give concession to a private local or international firm to undertake the exploration or extraction of oil with specified terms and agreement for a specified period of time.