Question

According to the memo, which of the follow are reasons that many large tech firms actually charge consumers low prices compared to large firms and monopolies of the past? Reasons for Charging Low Prices ____________

Not a Reason for Charging Low Prices ______________
Answer Bank :
- Increasing Marginal Costs - Scope Economies - Two-sided Platforms (or Markets) - Network Effects - Predatory Pricing

Answer 1

The memo states that two-sided platforms, network effects, and scope economies are reasons why large tech firms charge consumers low prices. Increasing marginal costs is not a reason for charging low prices.

Step-by-step explanation:

The memo discusses reasons why many large tech firms charge consumers low prices compared to large firms and monopolies of the past. These reasons include two-sided platforms or markets, network effects, and scope economies. Two-sided platforms refer to platforms that bring together two distinct groups, such as users and advertisers, and generate value by facilitating interactions between them. Network effects occur when the value of a product or service increases with the number of users or participants. Scope economies refer to cost savings that result from producing a wider range of products or services.

On the other hand, increasing marginal costs is not a reason for charging low prices. Increasing marginal costs occur when the cost of producing an additional unit of a product or service increases as the quantity produced increases.

Answer 2

Reasons for Charging Low Prices:

1. Scope Economies
2. Two-sided Platforms
3. Network Effects

Not a Reason for Charging Low Prices are:

1. Increasing Marginal Costs
2. Predatory Pricing

Large tech firms are those that can achieve scope economies by producing a variety of products and services using the same resources.

So, This allows them to lower their costs per unit and pass those savings on to consumers in the form of lower prices. This can make the platform more valuable for both sides of the market and allow the firm to generate revenue from other sources, such as advertising.