Which situation represents a barrier to entry created by economies of scale?

• A. Barrier to Entry for New Firms
• B. Lower Unit Cost
• C. Competitive Advantage
• D. Increased Market Demand

Answer: (A)

Economies of scale happen when producing more units lowers the average cost per unit. In a market with large, established firms, these low costs let them price aggressively or sustain profits even at higher output, making it hard for new entrants to compete on cost. That difficulty for new firms to enter the market is a barrier to entry created by economies of scale. So the correct description is a barrier to entry for new firms due to scale economies. Lower unit cost is the result of scale, not the barrier itself; competitive advantage and increased market demand describe other situations that don’t inherently create this specific entry barrier.