costs Flashcards
(15 cards)
what is EOS?
as the scale of production (output) of a firm increases, the long run average costs fall
what is internal EOS?
cost saving resulting from growth within the firm itself
what is external EOS?
cost saving resulting from the growth of the economy or market / industry of which the firm is a part of
what are the types of internal economies of scale?
research and development
financial (banks and
lending)
marketing
technical (machinery)
managerial
purchasing (bulk buying)
what are the types of external economies of scale?
education
technology
research and development
infrastructure (transport and health)
diseconomies of scale is…?
as the scale of production of a firm increases beyond productive efficiency, long run average costs rise
what are the causes of diseconomies of scale?
communication
control
coordination
what assumptions are made surrounding economies of scale?
-the firm operates in the short run
-all firms are rational
what is an example of natural monopoly?
national grid
a non ‘U’ shaped LRAC curve means…?
the fixed costs are so large productive efficiency and diseconomies of scale wont be met
what is MES?
the lowest output which the firm is able to produce at the minimum achievable LRAC
how does a high MES act as a barrier to entry?
-there is already an established firm in the market
-a small firm will have fewer customers
-so have to try harder to get MES
natural monopolies can never…?
reach MES
what does the cost curve envelope show?
-diminishing returns in the short run
-economies of scale in the long run
describe a cost curve envelope…
-the red curves represent a different premisses
-the LRAC curve is made up of the points of productive efficiency of the SRAC curves
