MGEC40H3 Study Guide - Standard Streams, Externality, Takers


Department
Economics for Management Studies
Course Code
MGEC40H3
Professor
Jack Parkinson

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ECMC40 ± Lecture 2
Outline: Horizontal Boundaries (of the Firm)
1) Scale/Scope of Economies (defn + sources)
2) Learning Curve/ Learning Economies (defn + sources)
Horizontal Boundaries ± refer to the amount of output. Product the firm makes
- Ex: how much of the product market it serves (market share)
Vertical Boundaries ± refer to the portion of the output (along the chain of production) that the
firm does for itself (rather than outsourcing)
- Ex: part of a pen ± ³WKHSODVWLFKRZPXFKLVRXWVRXUFHG"
ECMC40 ± Lecture 3
Last Week:
Outline
1) Sources of Diseconomies (of scale/scope)
2) Vertical Boundaries of the firm
- Vertical Chain of Production
- Upstream/Downstream
- Make or Buy Decision ± Benefits & Costs of using the market
Scale economies ± static
Learning economies - flexible
Scales economies are more likely to occur more than learning economies
- Simple production process, but need large amount of capital, high fixed costs
- Ex: many automated processes, no learning needed
Learning are more likely than Scale
- Labour intensive, complex processes, not a lot of fixed costs, learning occurs
- Ex: using ones brain, experience, creativity, low cost, lots of learning
Sources of Diseconomies ± only a moment in time, the tangent hits minimum
x Rising costs as the firm gets larger due to:
o Indivisibilities ± capacity constraint with respect to K or
wrt. L, Scarce Input (ex: land)
o Conflicting out ± 6SHQGLQJWRJHWVRPHRQH¶VEXVLQHVV
Competitors, Reputation ex: Pepsi vs. Coke
o Info & Coordination Costs ± moving info around
Scale
Scope
Learning
Greater
Horizontal
Integration
Size of firms &
market structure
Firm
decisions/actions
Market
Performance
Feedback may
occur into any of
the previous
processes
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