The scale of technology investment required to run a business can act as a barrier to entry by discouraging new, smaller competitors.

Question

BlackTom AI · Accepted Answer

Large fixed technology investments create a barrier to entry because they raise the minimum scale and upfront cost a new competitor must cover before becoming viable.

1. Relevant knowledge points and concepts
- Barrier to entry: factors that prevent or discourage new firms from entering a market.
- Fixed costs and capital intensity: high initial investments (technology, infrastructure, R&D) that do not vary with output.
- Minimum efficient scale and average cost curves: until output reaches a certain level, average cost per unit remains high.
- Economies of scale and network effects: incumbent advantages that amplify the deterrent effect of large tech investments.

2. Complete reasoning process step by step
- A potential entrant faces an upfront fixed cost (F) to acquire necessary technology and systems.
- The entrant’s per-unit cost equals variable cost (c) plus the fixed cost spread across output (F/Q).
- If F is large, F/Q is large for small Q, making unit costs high and profits negative unless sales volume is large.
- Incumbents that have already amortized F over a large output have lower average costs and can price competitively, discouraging entry.

3. Calculation example (all intermediate steps)
- Suppose fixed technology investment F = $10,000,000, variable cost per unit c = $10, market price p = $50.
- Break-even quantity Q* where total revenue = total cost:
  Revenue = p × Q, Total cost = F + c × Q.
  Set pQ = F + cQ → Q(p − c) = F → Q* = F / (p − c).
- Compute: p − c = 50 − 10 = 40. Q* = 10,000,000 / 40 = 250,000 units.
- A small entrant unable to sell 250,000 units faces losses, making entry unattractive.

4. Why the correct answer is correct
- The statement is True because the required scale of technology investment raises fixed costs and needed sales volume, disadvantaging smaller entrants and thus acting as a barrier.

5. Why other options are incorrect
- False would deny the deterrent effect of high tech investment; that contradicts standard industrial organization theory and real-world examples (telecom, semiconductor fabs, cloud infrastructure) where capital intensity deters new competitors.

6. Conclusion
- The statement is True, which matches the provided answer.

The scale of technology investment required to run a business can act as a barrier to entry by discouraging new, smaller competitors.单项选择题

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