Econ 1000 – Week 10 – Lecture 19
Costs curves are generally a U shape.
o Due to the reason that diminishing returns and diminishing
products the marginal costs will increase per unit produced.
Diminishing marginal product, it takes more resources to produce the
Short run – when one resource is fixed
2Q = F(2L, 2N) – Constant Returns in Scale
Long run and short run ATCs meet on the middle points of the Short
Long run curves, have a decreasing slope.
Diseconomies of scale, decreasing returns to scale: the costs double as
you double your outputs but the costs of a unit does not increase.
You can get diseconomies of scale, and if you cant find them you can
replicate or repeat old models.
However, diseconomies of scale are hard to find. When firms are too
big, they are hard to manage.
In market economies there are pockets of central planning, firms have
people who manage different sections of economies.
The larger the firm in diseconomies of scale, as you increase the
labour outputs and workers you need to increase the same amount
plus more of bosses/ceos/managers.
Firms want to max profits, Firms take prices – they generally can’t
influence the market price as long as there i