ECO 405 Lecture 10: CHAPTER 10- Cost Functions P3
Document Summary
Reasons for: easier to negotiate lower input prices, lower interest costs, can afford better capital and divide labor more, can spread out start up costs over more output. Reasons for diseconomies to scale: workers feel less connected and are less productive, monitoring and communicating becomes more difficult and costly, transportation costs more rapidly. Are drawn under the assumption that input prices and the level of technology are held constant. Any change in these factors will cause the cost curves to shift. For example a per unit tax on each good produced would shift mc and avc curves up by the amount of the tax and does not change the minimum efficient scale of output which is at q1. Production will occur at the vertex of the l-shaped isoquants (q = k=_ l) k= q/ l= q/ .
