The following is a list of various types of economies of
scale:
The firm can benefit from the specialization and division of
labour.
It can overcome the problem of indivisibilities.
It can obtain inputs at a lower prices.
Large containers/machines have a great capacity relative to
their surface area.
The firm may be able to obtain finance at lower cost.
It becomes economical to sell by-products.
Production can take place in integrated plants.
Risks can be spread with a larger...
1. What are economies of scale? How do economies and
diseconomies of scale influence the shape of the long run cost
curves? How do economies of scale relate to indivisible setup
costs? What are diseconomies of scale and how do they arise?
This question deals with external economies of scale.
a) How does external economies of scale potentially justify
infant industry protection? Use a diagram to help you answer
this.
b) Suppose that Germany and India can both produce shirts, but
India has a lower average cost curve. Germany has the head start in
world production of shirts, beginning as the world's only supplier
of shirts. Even though Germany has the head start advantage, India
can still enter production of shirts. Draw...
Diminishing returns and decreasing returns to scale are related
concepts. Discuss how a firm can experience diminishing returns to
labor while also experiencing increasing returns to scale. Conduct
some research and provide a real-world example within the context
of your discussion.
Given the following information, does this firm has economies of
scale or diseconomies of scale. Explain why with reference to the
values of ATC.
Small production unit . Large production uni
Q . FC VC Q . FC . VC .
5 50 . 50 50 . 500 . 500
10 . 50 . 70 100 500 . 800
20 . 50 . 200 200 . 500 . 2500