Th3.3: Economies and Diseconomies of Scale

Question 1

What are economies of scale?

Answer 1

the advantages of large scale production that enable a large business to produce at a lower average cost than a smaller business

Question 2

What is a firm able to experience as a result of economies of scale?

Answer 2

experience increasing returns to scale where an increase in inputs by a certain percentage will lead to a greater percentage increase in output

Question 3

What are diseconomies of scale?

Answer 3

the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise

Question 4

What is a firm able to experience as a result of diseconomies of scale?

Answer 4

experiences decreasing returns to scale, where output increases by a smaller percentage than inputs

Question 5

What are constant returns to scale?

Answer 5

where firms increase inputs and receive an increase in output by the same percentage

Question 6

Refer to PP

Look at Graph 32. What is the minimum efficient scale?

Answer 6

the minimum level of output needed for a business to fully exploit economies of scale

Question 7

Refer to PP

Look at Graph 32. The minimum efficient scale is the point where…

Answer 7

the point where the LRAC curve first levels off and when constant returns to scale is first met

Question 8

Draw the minimum efficient scale three times!!

Answer 8

yes yes yes!!