Explain the following concepts, using appropriate diagrams: a) Economies of scale; b) Constant...

Question

Explain the following concepts, using appropriate diagrams: a) Economies of scale; b) Constant returns to scale; c) Diseconomies of scale; d) the Minimum efficient scale

Robert · Accepted Answer

All these concepts apply in the long run period. This is when all inputs are variable and can be adjusted/ changed. These concepts can be explained using the long run average cost curve (LAC). This curve shows the minimum possible average cost of producing any given output level.
The LAC is a U shaped curve that exhibits the following behaviour: 
· It slopes down initially showing that average costs fall. this is the region where economies of scale operate. There can be many reasons for falling average costs and include
1. Specialization and division of labour:
as output rises workers can be organised to do specific tasks. With training  and practice they become adept at these tasks- An example is an assembly line with many different jobs.
2. Technical economies of scale. 
Large outputs allow fixed costs to be spread over higher output so that average fixed costs are lowered. A car factory requires large amount of land. If operated on a small scale it is inefficient. By using the plant factory to full capacity average costs will be lower.
3.

Explain the following concepts, using appropriate diagrams: a) Economies of scale; b) Constant returns to scale; c) Diseconomies of scale; d) the Minimum efficient scale

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment