All Flashcards
Differentiate between short-run and long-run costs.
Short-run has at least one fixed input; long-run allows all inputs to vary.
What are the key differences between economies and diseconomies of scale?
Economies of scale decrease average costs with increased output; diseconomies increase average costs.
Compare and contrast economies of scale and constant returns to scale.
Economies of scale reduce average costs; constant returns keep average costs the same as output increases.
How do diminishing returns differ from diseconomies of scale?
Diminishing returns is a short-run concept; diseconomies of scale is a long-run concept.
Compare the impact of specialization in economies of scale versus diseconomies of scale.
In economies of scale, specialization increases efficiency; in diseconomies, over-specialization can lead to coordination issues.
How do economies of scale and scope differ?
Economies of scale refer to cost advantages from increased production levels of a single product, while economies of scope refer to cost advantages from producing a wider variety of products.
What is the difference between internal and external economies of scale?
Internal economies of scale are cost advantages that arise from within the firm, while external economies of scale are cost advantages that arise from outside the firm, such as industry clustering.
Compare the role of technology in achieving economies of scale versus diseconomies of scale.
Technology can enable economies of scale by improving efficiency and reducing costs, but it can also contribute to diseconomies of scale if not managed effectively.
How does the LRATC curve differ in industries with high fixed costs versus low fixed costs?
In industries with high fixed costs, the LRATC curve is likely to exhibit significant economies of scale, while in industries with low fixed costs, the LRATC curve may be flatter.
Compare the impact of government regulations on economies of scale versus diseconomies of scale.
Government regulations can increase costs and hinder economies of scale, but they can also help prevent diseconomies of scale by promoting better management practices.
How do economies of scale apply to a large car factory?
Specialized workers, bulk buying of materials, and efficient equipment lower average production costs.
How do diseconomies of scale affect a rapidly growing tech company?
Management issues, loss of focus, and bureaucracy can increase average costs as the company expands.
How does the LRATC curve guide a firm's investment decisions?
It helps firms choose the optimal plant size and production level to minimize average total costs in the long run.
Explain how specialization leads to economies of scale.
When workers specialize, they become more efficient, increasing output and lowering average production costs.
How does bulk buying contribute to economies of scale?
Buying inputs in large quantities allows firms to negotiate lower prices, reducing average costs.
Why might a small business avoid rapid expansion?
To avoid diseconomies of scale such as management issues and loss of focus, which can increase costs.
How do management issues lead to diseconomies of scale?
Coordination and communication become difficult as a firm grows, leading to inefficiencies and higher costs.
How does loss of focus lead to diseconomies of scale?
A firm may become less efficient if it expands into areas outside its core expertise, increasing average costs.
How does bureaucracy contribute to diseconomies of scale?
Red tape and slow decision-making can increase costs and reduce efficiency as a firm grows larger.
How does a firm determine if it has reached constant returns to scale?
The firm's average costs remain stable as output increases, indicating it is operating at its most efficient size.
Define Long-Run Costs.
Costs when all inputs are variable; firms can adjust plant size, equipment, and labor.
What is the LRATC curve?
The lowest possible average total cost for each output level when all inputs are variable.
Define Economies of Scale.
A firm's average costs decrease as its output increases.
Define Diseconomies of Scale.
A firm's average costs increase as its output increases.
Define Constant Returns to Scale.
A firm's average costs stay constant as its output increases.
What is the short run?
A time period where at least one input is fixed.
What is the long run?
A time period where all inputs are variable.
Define Specialization.
Workers become experts at specific tasks, boosting efficiency.
Define Bulk Buying.
Larger firms can negotiate lower prices for inputs.
Define Bureaucracy.
Red tape and slow decision-making can increase costs.