MGMT 4900 Lecture Notes - Competitive Equilibrium, Perfect Competition, Cogeneration

• School: York University
• Department: Management
• Course: MGMT 4900
• Professor: David Stamos

Document Summary

Recall that all factors, particularly capital, are variable in the long-run. We analyze the effect of changes in the size of individual firm capital through the concept of economies of scale. Economies of scale (increasing returns to scale) occur when a % increase in all factor inputs causes a greater % increase in output. Suppose that 5 units of labour and 3 units of capital produce 100 units of output but that 10 units of labour and 6 units of capital produce 250 units of output. => 100% increase in factor inputs produces a 150% increase in output. Why does the concept of economies of scale not contradict eventually diminishing. Definition: diseconomies of scale (decreasing returns to scale) occurs when a % increase in all factors causes a smaller % increase in output. Definition: constant returns to scale occurs when a % increase in all factors causes the same.