Answer to Question #248861 in Microeconomics for dytdjk

Question

Think about a single fast-food restaurant location and a commercial airline flying out of a single airport. If quantity is represented by the number of customers served, which business has the larger economies of scale? What does this mean for the number of firms and competitiveness of these industries?

Answer 1

Economies of scale refers to the advantage of cost that any firm have when there is an increased output level.

If quantity is represented by the numbers of customers served, then the commercial airline is serving more customers than the fast-food restaurant. This means that the commercial airline is enjoying a larger economies of scale comparing it to the restaurant.

More restaurants will be established than the airlines since initial capital to start and run the restaurant is much lower.

Large companies will have a competitive advantage over the small companies. This is because the larger the company, the less its per unit cost will be.