Question

In a monopolistically competitive market like restaurants, large capital-intensive firms like McDonald's may co-exist with more labor-intensive mom-and-pop shops. In this case, higher labor costs would tend to favor the survival of:________. a) large-scale capital-intensive firms more than the small firms. b) domestic restaurant firms more than the foreign firms. c) foreign firms more than the large-scale capital-intensive firms. d) small firms more than the large-scale capital-intensive firms

Answer 1

Option A.

Large-scale capital-intensive firms more than the small firms.

Step-by-step explanation:

Higher labor costs favor the survival of large-scale capital-intensive firms more than the smaller firms because the large scale firms will have a correspondingly larger revenue that will help cater for the high labor costs.

Small firms on the other hand cannot afford high labor costs, as this will offset their profit margins greatly.

This makes the correct option A.