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NEW QUESTION: 1
Which of the following is not a technological factor that may lead to overbuilding?
A. Changes in production technology.
B. Long lead times for adding capacity.
C. The presence of economies of scale.
D. High exit barriers.
The following are technological factors that may lead to overbuilding:
capacity may need to be added in large increments;
the presence of economies of scale or a steep learning curve encourages preemption;
long lead times for adding capacity increase the risk of competitive inferiority if a firm does not act quickly to raise capacity;
when the minimum efficient scale increases, large plants are becoming more efficient even though demand is not growing:and
changes in production technology result in new construction while old plants remain in operation. High exit barriers are a structural factor that may lead to overbuilding. The effect of high exit barriers is to extend the period of overcapacity.