Activity 30 Economies of Scale The long-run for competitive firms.

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Activity 30 Economies of Scale The long-run for competitive firms

Long-run Average Cost Curves In the short-run –In the moment –Firms can vary output but not plant capacity –The shapes of average and marginal cost curves result from diminishing marginal productivity of the resources In the long-run –A period of time in which –Firms can vary plant capacity and output –The shapes of average and marginal cost curves result from economies and diseconomies of scale

Sources of economies of scale Specialization of resources More efficient uses of equipment A reduction in per-unit costs of factor inputs An effective use of production by-products Increase in shared facilities

Sources of diseconomies of scale Limitations on management decision making Competition for factor inputs –Resources for production –Resources for distribution

Long-Run Average Total Cost Q Q 1 SRATC SRATC 1 SRATC 2 OUTPUT COST

Long-Run Average Total Cost Q Q 1 SRATC SRATC 1 SRATC 2 OUTPUT COST LRATC