PrepTest 138, Section 1, Question 22
David Warsh's book describes a great contradiction inherent(451 more words not shown)
Which one of the following,(17 more words not shown)
- AIn some industries,(27 more words not shown)
- BAs the tasks(26 more words not shown)
- CWhen an industry(23 more words not shown)
- DThe size that(20 more words not shown)
- EIf a business(28 more words not shown)
Reading the passage
Follow the chain we're weakening: bigger firms can specialize more, specialization raises efficiency and lowers costs, and that advantage helps them push smaller competitors out. A useful objection would show that getting bigger doesn't keep delivering the cost advantage the argument relies on.
What we’re looking for
We don't need to prove that large firms always perform worse. Showing that added costs cancel the gains from greater specialization would already weaken the connection to monopoly power.
Working the answers
- A
Monopoly power in one region is compatible with a larger business existing somewhere else. That doesn't show that the local monopolist lacks a size advantage over the competitors it actually faces, or that larger scale fails to lower costs.
- B
Lower salaries for more narrowly specialized workers would give firms another way to reduce costs. That supports the advantage described rather than undermining it.
- C
A few firms setting monopoly-like prices fits the concern about industries becoming concentrated. It doesn't supply a disadvantage that breaks the size-to-market-power connection.
- D
The threshold for achieving increasing returns can vary by industry while the general relationship still holds. Different starting points don't show that the gains disappear once firms reach them.
- ECorrect
Training costs and turnover offset the extra productivity from making already-specialized workers even more specialized. That undercuts the continuing net advantage of expanding specialization. Offsetting the benefit is enough; the answer doesn't have to establish that the larger firm ends up worse off overall.
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