CAIE A-Level Economics 7.6.3 Barriers to Entry and Exit

Practise classifying legal, market, cost and physical barriers and evaluating how sunk capital, scale economies, patents and advertising affect entry and competitive pressure.

Exam points

classify patents as legal, advertising or loyalty as market and scale or sunk capital as cost barriers
explain why lower sunk investment and absent scale economies make entry more contestable
evaluate competition using concentration, behaviour and exit conditions as well as entry barriers

[Maximum number: 1]

Which combination of cost conditions is most likely to act as a barrier to entry to a new firm wanting to join an industry?

fixed costs as
a proportion of
total costs

minimum efficient
scale of firms in
the industry

level of
sunk costs

high

high output

high

low output

high

low

high output

low

low output

low

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7.6.3—Barriers to entry/exit question 1