Likewise, excessive demand for a good will cause firms to produce more of it, increasing consumer sovereignty.They will therefore rely on consumption decisions to alter their production patterns, increasing consumer sovereignty A highly competitive market would mean that it is hard for firms to gain adequate market share.Persuasive advertising is a way that firms can manipulate them into purchasing certain products over others, which directly reduces consumer sovereignty.Now we need to go through each answer option, and describe whether consumer ‘controlling power’ has increased or decreased: This multiple choice question requires you to know the definition of consumer sovereignty that is the controlling power that a consumer has in determining production decisions based on consumption patterns. However, the increase in compliance costs will increase average costs, making this option an external diseconomies of scale Likewise, (D) is also out of the firm’s control making it an external factor.This makes (C) an external economies of scale Any contribution from the government is outside the firm’s control, and in this case more spending on roads could help reduce traffic congestion and lower the time and costs associated with transports.This makes (B) an internal economies of scale it’s their choice to make that production decision. The purchase of raw materials in bulk is again specific to the firm i.e.Since the increase in productivity is specific to the firm, it would indicate that this factor is inside the firm’s control, and is this an internal economies of scale.A downward shift in the LRAC curve is also known as an external economies of scale when a factor outside the firm’s direct control will decrease the average costs of goods or services produced.
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