Economies And Diseconomies Flashcards
What is economies of scale?
AS the scale of production of a firm increases, the long run average costs fall
What is internal economies of scale?
Cost saving resulting from growth of firm itself
What are the types of internal economies of scale?
- Research and development
- financial
- marketing
- technical
- managerial
- purchasing
What are the types of external economies of scale?
- Education and training
- infrastructure
- technology
- research and development
What are diseconomies of scale?
Where an increase in the scale of production leads to an increase in long average costs
What are the causes of diseconomies of scale?
- Control
- cooperation/coordinate
- communicate
What is minimum efficient scale (MES)?
The lowest output which the firm is able to produce at the minimum achievable LRAC
Why does a high MES act as a barrier to entry?
- Higher start up costs
- can’t benefit from economies of scale straight away so costs are high.
What are increasing returns to scale?
Where an increase in factor inputs leads to a more then proportionate increase in output
What are Constant returns to scale?
Where an increase in factor inputs leads to a proportionate increase in output
What are decreasing returns to scale?
Where an increase in factor inputs leads to a less than proportionate increase in output
What is invention?
Coming up with something new
What is innovation?
Improving/ upgrading
What is technological change?
A term that is used t describe the overall effect of invention, innovation and diffusion or spread of technology in the economy
What is dynamic efficiency?
Occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency; requires supernormal profit; innovation.
