AS Economics Presentation - RGS Info（经济学演讲该信息）.pdfVIP

Economies and Diseconomies of Scale AS Economics Presentation 2005 Key Issues • Long run production • Economies of scale • Economies of scope • Benefits of economies of scale for consumers and producers • Economies of scale and the development of monopoly power in a market • Possible causes of diseconomies of scale Returns to Scale in Long run Production • Increasing returns to scale – When the % change in output % change in inputs – E.g. a 30% rise in factor inputs leads to a 50% rise in output – Long run average cost will be falling • Decreasing returns to scale – When the % change in output % change in inputs – E.g when a 60% rise in factor inputs raises output by only 20% – Long run average cost will be rising • Constant returns to scale – When the % change in output = % change in inputs – E.g when a 10% increase in all factor inputs leads to a 10% rise in total output – Long run average cost will be constant Changing the scale of production Internal Economies of Scale • Technical Economies of Scale – The Law of Increased Dimensions • Cubic law can be applied where cubic volume increases more than proportionate to surface area – Economies of linked processes • Production processes can linked together with one integrated plant – important in mass production which requires complex manufacturing processes – Large-scale indivisible units of capital machinery • Capable of high productivity (e.g. presses used in the manufacture of steel products) • Huge units of capital require a vast output in order to reduce the average cost per unit – Specialisation and Division of Labour • Breaking down the production process into many small tasks Scale Economies Continued • Marketing Economies • Expensive a