Question

1. DISTINGUISH BETWEEN ECONOMIES OF SCALE AND DISECONOMIES OF SCALE
2. TRUE OR FALSE. A PRODUCER CAN OPERATE IN THE SITUATION IN WHICH PRICE IS LESS THAN AVERAGE VARIABLE COST.
3. WHAT FOUR BASIC CONDITIONS CHARACTERIZE A COMPETITIVE MARKET?
4. WHAT IS ECONOMIC PROFIT? CAN A FIRM IN A COMPETITIVE INDUSTRY EARN ECONOMIC PROFIT?

Answer 1

DISTINGUISH BETWEEN ECONOMIES OF SCALE AND DISECONOMIES OF SCALE-

Economies of Scale

Diseconomies of Scale

1)When firms increase their scale of production , they get some advantages of production which are known as economies of scale. 2) Economy means saving in per unit cost as output increases.As the firm increase their level of output, per unit cost of production decreases. 3) Economies of scale lead to a fall in the long run average cost 4) Some economies experienced by firms are- managerial economies, technical economies,economies of localisation etc..

1)When the  increase in the scale of production of firms becomes excessively large, certain disadvantages accrue to the firm which are known as diseconomies of scale. 2)Diseconomy means dissaving in per unit cost as output increases.As the firm increases their level to a certain level, per unit cost of production increases. 3) Diseconomies of scale lead to an increase in the long run average cost. 4) Some diseconomies experienced by firms are-labour inefficiency, costlier transport, technical diseconomies etc.