1.Netflix seems like a spectacular company with a spectacular CEO.It has successfully moved from mail-order CD's to become a programmer of online shows and movies.Its revenues are growing in excess of 25% per year, and it's earning are growing too.However, at its current stock price Netflix is selling for a price/earnings ratio of over 250.The only way that I can believe that a P/E ratio that high can be justified is if there are either natural monopoly or returns-to-scale advantages in the industry.

a.Can you identify any characteristics of online movie production/distribution that would allow you to characterize the industry as no size advantage, a returns-to-scale industry, or a natural monopoly industry?Please explain.

b.Given your analysis in a., can you identify any developments in the online movie/show distribution industry that support your conclusion from a.?