56: Long run costs and economies of scale

Question 1

marginal decision rule

Answer 1

MPcapital / Pcapital = MPlabor / Plabor

firms will increase the factor whose marginal benefit (= marginal product) is greater

Question 2

long run average cost curve (LRATC)

Answer 2

plots the lowest possible cost in the long run for each quantity that could be produced

Question 3

economies of scale

Answer 3

increasing production decreases cost and increases efficiency

Question 4

constant returns to scale

Answer 4

increasing production doesn’t change efficiency

Question 5

diseconomies of scale

Answer 5

increasing production increases cost, typically due to failure of upscaling human management