Costs Of Economies of scale Flashcards
What are fixed costs ?
Costs which don’t vary with output, exp rents and advertising
Variable costs ?
Change with output, Exp cost of raw materials
(Direct )
How to calculate Total cost ?
Variable costs + fixed costs
Average costs =
total costs/ quantity produced
Marginal cost is …
cost of producing one extra unit
Explain SRAC ?
Law of diminishing marginal productivity- at some point in the production process l, adding more inputs leads to a fall in marginal output
Short run and long run …
In the short run at least one factor of production can’t change, this means there are some fixed costs, In long run all factor inputs can change (Variable costs)
What is the difference between marginal, average and total returns ?
Marginal-extra output derived per extra unit
Average-output per unit of input
Total -Total output produced by a number of units
What is Returns to scale ?
Change in output of a firm after an increase in factor inputs
Long run production function?
Returns to scale increases when the output increases by a greater proportion to the increase in inputs
Explain LRAC ?
If fixed cost are high average costs are lowered as output increases
When do internal economies of scale occur ?
When a firm becomes larger, AC of production fall as output increases
Examples of internal economies of scale ?
R-Risk bearing
F-financial
M-Managerial
T-Technology
M-marketing
P-Purchasing
What are external economies of scale ?
Occur within industry for example local roads might be improved so transport costs for local industries will fall
What are diseconomies of scale ?
Occur when output passes a certain point and Ac starts to increase per extra unit of output produced
Control, Coordination and communication
