Importante

Question 1

There is a question asking you to show a change in fixed costs
There is another question asking you to show a change in variable costs
Both diagramtically, how do you do it?

When can this be used in an essay?

How can this be analysed?

Answer 1

Change in fixed costs means ONLY the AC curve shifts
Change in variable costs meand the AC and MC curve shift

Windfall taxes

Differences in profits, quantities, costs

Question 2

Show LRAC curve, Increasing returns to scale, Constant returns to scale, Decreasing returns to scale, EOS, disEOS and MES on a diagram.

Answer 2

see flashcard

Question 3

Show on a diagram a small firm exploiting smaller EOS and a large firm exploiting full EOS

Answer 3

see flashcard

Question 4

What are the 5 types of internal EOS? Name an example for each.
What is the key sentence when explaining how they create EOS?

Answer 4

Fun Mums Try Making Pies

Financial Economies - Negotiating lower interest rates on loans due to having a track history of successful repayments

Marketing Economies - Use size to bulk buy advertising and negotiate lower rates

Technical Economies - Being able to afford highly specialist machinery that is more efficient increasing productivity of capital or improves quality of the good.

Managerial Economies - A large firm can afford to employ specialised managers to improce worker productivity.

Purchasing Economies - Being able to bulk buy raw material / imputs from suppliers and therefore recieving a discount price.

……Output will rise at a greater rate than total costs, reducing unit costs.

Question 5

What are the external EOS?

Answer 5

Transport infrastructure - As the business gets larger this may improve in the locality of the business, reducing costs of production

Material Suppliers move closer to business - Supplies may do this if the business is very large, reducing delivery costs

RnD firms move closer to the business - Business benefits from innovation that can reduce total costs

Question 6

What are the 3 diseconomies of scale?

Answer 6

Communication - So large that messages dont travel easily, reeucing efficiency

Coordination - More staff / layers of management, harder to control as greater time is taken to feed through channels, reducing efficiency

Motivation - Workers feel more alienated and less singificant, decreasing productivity and increasing labour turnover