Reference no: EM133428830
Questions: Consider the case of Best Buy, the big box consumer electronics retailer. Best Buy is an example of a "Category Killer,' which is a retailer that uses its size to gain a competitive advantage over smaller retailers and sometimes forces them out of business.
a. Use the concept of economies of scale to explain why this might be the case. Show the graph of economies of scale to support your answer by comparing Best Buy to smaller retailers.
b. Discuss how the following might lead to economies of scale for Best Buy:
(1) Indivisible inputs
(2) Any two of the following: purchasing economies, advertising economies, inventories
c. What is the implication of the existence of economies of scale on the number and size of firms in this industry?
d. Discuss how economies of scale could serve as a barrier to entry in this case.
e. Discuss the main factor that could cause Best Buy to experience diseconomies of scale.
f. In addition to consumer electronics, Best Buy also sells appliances. Discuss two factors that may allow Best Buy to achieve economies of scope in selling both consumer electronics and appliances.
g. Suppose the cost functions for Best Buy in terms of consumer electronics (X) and appliances (Y) are as follows:
C (40, 0) = 220 C (0, 10) = 390 C (40, 10) = 550
C (80, 0) = 360 C (0, 20) = 880 C (80, 20) = 1120
Does Best Buy have economies of scale in sale of either consumer electronics or appliances? Does it have economies of scope?
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