ECON 1100 Lecture Notes - Lecture 17: Optical Fiber, Product Differentiation, Market Power
4 Sep 2019
School
Department
Course
Professor
Document Summary
Suppose the firm would like to increase its plant size further: Each sratc curve is tangent to the lrac (long run average cost) curve at the level of output for which the quantity of the fixed factor is optimal and the sratc curves lie above the. From 0-q2 the firm has falling average lrac. The decline in average cost is a result of economies of scale. From 0-q2, output is increasing more than in proportion to inputs as the scale of production expends = economies of scale. At q2, the firm achieves minimum efficient scale. At the minimum efficient scale, all economies of scale have been exhausted. Any output level greater than q2, the lrac is rising because of diseconomies of scale. Output is increasing less than in proportion to inputs as the scale of the firms production expands further. An example of the diseconomies of scale is the difficulty in managing and controlling a firm as its size increases.
