1. Economies of Scale
Lesson 9
Sections 56, 57

2. Short Run and Long Run Costs (56)
In the Short Run, a business may only be able to change a few variable of input and output.
In the Long Run, any changes may be made to input and output.
The business owner will have to make choices based on what levels of production to maintain. The idea is to minimize long term costs.

3. Sunk Costs
Sunk Costs are resources that have already been used and cannot be recovered, thus creating a situation where inefficient production and products continue to be used, even where there are better alternatives
Fixing your car or buying new
Heavy machinery and factories

4. Economies of Scale
An economy of scale is where a business’ costs continue to drop with each product made.
Normally after a certain amount, the cost of making each additional product falls for a time (startup costs are large initially, an the cost to make an individual item small), but eventually the cost rises again.
With an economy of scale, the cost keeps dropping, up to the limit of supplying the entire world market.
This is where a single business can produce enough of a good for everyone, and do it cheaply.

5. Average Total Cost in the Short and Long Run
Quantity of
Cars per Day
Average
Total
Cost
1,200
$12,000
1,000
10,000
Economies of
scale
ATC
in short
run with
small factory
medium factory
large factory
in long run
Diseconomies
Constant
returns to