Costs Flashcards
Why is lrac U shaped
Economies and diseconomies of scale
Why are srac curves U shaped?
Increasing and diminishing returns
When does AC increase and decrease?
MC>AC, AC increases
MC<AC, AC decreases
What are economies of scale?
Falling LRAC of production as output increases
What are returns to scale?
Changes in level of output as a result of changes in the amount of factor inputs used
What are purchasing economies?
Large companies bulk buy
What are managerial economies?
Firm can employ efficient specialist managers
What are marketing economies?
Costs of marketing are spread over output
What are three types of external economies?
Economies of concentration - industry concentrated in one area develops a skilled labour force locally
Information- businesses share market information
Reputation- the reputation of an area will help the business located there to sell their products
What is the relevant economy of scale for when a business starts selling its products in a new market?
Risk-bearing
What are economies of scale?
Falling LRAC of production as output increases
What are returns to scale?
Changes in the level of output as a result of changes in amount of factor inputs used. If greater, increasing returns, if less, diminishing
What are 3 types of diseconomies of scale?
Communication
Morale and motivation
Coordination
