measuring economies of scale in long run, Microeconomics

Economies and Diseconomies of Scale

-Economies of Scale

  • Increase in the output is greater than increase in the inputs.

-Diseconomies of Scale

  • Increase in the output is less than increase in the inputs.

Measuring Economies of Scale

2373_economies of scale.png

Thus, the following is true:

-EC< 1: MC < AC

  • Average cost shows decreasing economies of scale

-EC = 1: MC = AC

  • Average cost shows constant economies of scale

-EC > 1: MC > AC

  • Average cost shows increasing economies of scale

The Relationship between Short Run and Long Run Cost

-We will use long and short run cost to determine optimal plant size

Long-Run Cost with the Constant Returns to Scale

1609_long run curve.png

Observation

-The optimal plant size depends on the anticipated output (for example Q1 choose SAC1,etc).

-The long run average cost curve is the envelope of the firm's short run average cost curves.

Question

-What would happen to the average cost if an output level other than that shown is selected?
Long Run Cost(LRC) with Economies and Diseconomies of Scale
31_long run cost.png

What is firms' long run cost curve?

-Firms can change scale to change output in the long-run.

-The long run cost curve is dark blue portion of SAC curve which represents minimum cost for any level of output.

Observations

-The LAC doesn't include minimum points of small and large size plants? Why not?

-LMC is not envelope of short run marginal cost. Why not?

Measuring Economies of Scale
746_economies of scale1.png

*  Thus, the following is true:

- EC< 1: MC < AC

  • Average cost signifies decreasing economies of scale

- EC = 1: MC = AC

  • Average cost signifies constant economies of scale

- EC > 1: MC > AC

  • Average cost signifies increasing economies of scale

*  The Relationship Between Short Run and Long Run Cost

- We will use long and short run cost to determine optimal plant size
Long Run Cost with the Constant Returns to Scale

1392_long run cost1.png

* Observation

- The optimal plant size depends on the anticipated output (for example Q1 choose SAC1,etc).

- The long run average cost curve is the envelope of the firm's short run average cost curves.

*  Question

- What would happen to the average cost if an output level other than that shown is selected?

Long Run Cost (LRC) with Economies and Diseconomies of Scale

935_long run cost2.png

Posted Date: 10/12/2012 3:31:15 AM | Location : United States







Related Discussions:- measuring economies of scale in long run, Assignment Help, Ask Question on measuring economies of scale in long run, Get Answer, Expert's Help, measuring economies of scale in long run Discussions

Write discussion on measuring economies of scale in long run
Your posts are moderated
Related Questions
Q. Explain about Counter-Cyclical Policies? Counter-Cyclical Policies:Governments may take many different actions to offset ongoing booms and busts of private-sector economy. T

uses of time series in indian economy

What do you mean by Consumption Set? Consumption Set: We notice a consumer faced along with possible consumption bundles within consumption set X. We generally assume that X

How to solve economics assignment help?

A Period of Deterioration: The entire period was very difficult for India's BOP, partly because of slow growth of exports in relation to import requirements and partly because

DRAW A SIMPLE CIRCULAR FLOW DIAGRAM AND DISCUSS BRIEFLY THE DISTINCTION BETWEEN AN INJECTION INTO THE FLOW AND A LEAKAGE FROM IT

REAL BUSINESS CYCLES: The extent of this module is partly indicated in the title. It is about real business cycle (RBC) theory. In addition, it exposes you to New Classical Bu

Q. Explain abput Capitalist Class? Capitalist Class:Group of individuals (which represents just a couple of percent of population in advanced capitalist countries) which contro

Problem 1: Any development strategy should put people first; indeed, its very effectiveness should be measured in terms of how it impacts the poor. (a) Describe the link bet

Question 1: a) Describe the labour market Information. b) What are the basic factors that affect the labour market trend? c) Explain the influence of these factors on th