Answer to Question #86975 in Microeconomics for Rejoice Myeza

Question

Government is proposing to set up another firm to compete with Arcelor-Mittal. Show, using the theory of the firm, why this proposal may not be viable.

Answer 1

If government is proposing to set up another firm to compete with Arcelor-Mittal, then according to the theory of the firm this proposal may not be viable, because there may be very high costs to start producing in the industry, there are economies of scale or other barriers to entry, so the market is a kind of natural monopoly.