This question focuses on an oligopoly and its reliance on economies of scale.

1.    This question focuses on an oligopoly and its reliance on economies of scale.

a.    Explain the role of economies of scale in the success, or perhaps lack of success, for a given supplier operating within the context of oligopoly. In particular, how can economies of scale relate to the achievement of a competitive advantage in the marketplace?

b.    Why is market share within the oligopoly so important in the achievement of economies of scale?

c.    Can an oligopoly firm ever become so large that they lose their competitive advantage due to diseconomies of scale? Explain with both narrative and an illustrative graph (no numbers). 

P1 LRAC P2C2C1 AR Q1 Q2 Producing an output beyond the minimum efficient scale e.g. at Q2 leads to lower total profits. Diseconomies of scale cause unit costs to be higher than at output Q1.