3.3 - Costs (Long Run)

Question 1

Which economic condition only occurs in the long run?

Answer 1

Economies of scale

Question 2

How do economies of scale affect long run costs?

Answer 2

Economies lower costs
Diseconomies increase costs

Question 3

What are economies of scale?

Answer 3

Lowering unit costs
Business expansion causes avg. costs to fall

Question 4

When do internal economies of scale occur?

Answer 4

During business growth

Question 5

When do external economies of scale occur?

Answer 5

Industry grows
Leads to a fall in average costs

Question 6

Explain the shape of the LRAC curve

Answer 6

Downward slope, economies of scale occur
Constant returns to scale - curve flattens
Upward gradient, diseconomies occur

Question 7

How does the long run differ from the short run?

Answer 7

All factors of production are variable
Level of output variable

Question 8

What are returns to scale?

Answer 8

Manner in which output responds to changes in input
Amount of change in output relative to change in input

Question 9

What are the 3 forms of returns to scale

Answer 9

Increasing
Constant
Decreasing

Question 10

What are agglomeration economies?

Answer 10

Businesses in similar industries cluster together + attract influx of skilled labour + human capital