Documente Academic
Documente Profesional
Documente Cultură
AS Economics
tutor2u™
Key Issues
tutor2u™
Returns to Scale in Long run Production
tutor2u™
Returns to Scale in Long run Production
tutor2u™
Returns to Scale in Long run Production
tutor2u™
Changing the scale of production
tutor2u™
Internal Economies of Scale
tutor2u™
Internal Economies of Scale
tutor2u™
Scale Economies Continued
• Marketing Economies
• Expensive advertising spending can be spread over
huge volumes of sales – reduces the marketing
costs per unit
tutor2u™
ARLA dairy at Lockerbie, Scotland
tutor2u™
Scale Economies continued
• Financial Economies
– Bulk purchasing economies
• Monopsony power of buyers of components)
– Access to cheaper sources of finance
• Lower interest rates for larger businesses
• E.G. share issues and corporate bond finance
• Learning Economies
• Efficiencies due to the length of experience in a market
• Readily available in high-knowledge industries
• “Learning by doing” “Tricks of the trade”
tutor2u™
The long run average cost curve
Costs
Productive efficiency in the long
run is achieved when output is
produced at the bottom of the
SRAC1
long run average cost curve
SRAC3
SRAC2
AC1
LRAC
AC2
AC3
Q1 Q2 Q3 Output (Q)
tutor2u™
Illustrating economies of scale
Costs ECONOMIES OF SCALE ALLOW LOWER ATC, LOWER PRICES AND HIGHER PROFITS
Revenues
SRAC1
Demand
AC2
tutor2u™
Economies of Scope
tutor2u™
Limits to Economies of Scale
• Diseconomies of scale
• A business may expand beyond the optimal size in the
long run and experience diseconomies of scale
tutor2u™
External Economies of Scale
AS Economics
tutor2u™
External Economies of Scale
tutor2u™
External Economies of Scale (2)
tutor2u™
Diseconomies of Scale
AS Economics
tutor2u™
Diseconomies of Scale
tutor2u™
External Diseconomies of Scale
tutor2u™