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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.
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.
What does the downward-sloping portion of the LRATC curve represent?
Economies of scale, where average costs decrease as output increases.
What does the upward-sloping portion of the LRATC curve represent?
Diseconomies of scale, where average costs increase as output increases.
What does the flat portion of the LRATC curve represent?
Constant returns to scale, where average costs remain constant as output increases.
How are SRATC curves related to the LRATC curve?
The LRATC curve is formed by the minimum points of all possible SRATC curves.
What does a point on the LRATC curve represent?
The most efficient scale of production for that output level.
How does the LRATC help firms with production decisions?
It shows the lowest possible average total cost for each output level, guiding decisions on plant size and production scale.
What does a shift in the LRATC curve indicate?
A change in the underlying cost structure of the firm, possibly due to technological advancements or changes in input prices.
How can a firm identify if it is operating at the minimum efficient scale (MES)?
By locating the lowest point on the LRATC curve, which represents the output level where average costs are minimized.
How does the shape of the LRATC curve influence market structure?
The shape of the LRATC curve can determine whether a market is likely to be dominated by a few large firms or many small firms.
What does it mean if a firm's SRATC curve is above the LRATC curve?
The firm is not operating at the most efficient scale for its current output level and could reduce costs by adjusting its inputs.