Long-run and Short-run

Question 1

Technical optimum level of output

Answer 1

Lowest cost per unit
Most efficient combinations of resources

Question 2

Long run

Answer 2

When the firm can change all factors of production
In the long run business can grow
To see the changes of how the business is growing you must find inputs / outputs of the firm

Question 3

Returns to scale

Answer 3

Comparing the amount of % increase in output / % increase of size

Question 4

Increasing returns to scale

Answer 4

Internal economies of scale
Large firm advantages
% increase of output > % increase of size

Question 5

Constant returns to scale

Answer 5

Optimum size
Where % increase of output = % increase of size

Question 6

Decreasing returns to scale

Answer 6

Internal diseconomies of scale
Disadvantages of large firms
% increase of output < % increase of size of a firm

Question 7

Internal economies of scale

Answer 7

Advantages of large firms
Marketing economies of scale
Financial economies of scale
Technical economies of scale
Risk-baring economies of scale

Question 8

Marketing economies of scale

Answer 8

factors that lead to a reduction of ac in advertising and promotion.
Buying in bulk
Advertising costs are spread thin

Question 9

Financial economies of scale

Answer 9

Bigger firms get a cheaper interest rate as they have more assets causing there to be less risks in getting loans

Question 10

Technical economies of scale

Answer 10

Cost advantages a large firm can enjoy due to their financial resources
Can invest in machinery causing more goods to be produced at an efficient rate and lowers the AC per unit of output

Question 11

Risk bearing economies

Answer 11

Larger firms do not need to depend on one product for profit as they could have multiple firms in separate industries or even countries. They use diversification to create multiple goods. Ex) Hugo’s, Hugo’s pub and Hugo’s hotel or Mc donnalds in different countries

Question 12

Diseconomies of scale

Answer 12

Disadvantages of large firms
Management diseconomies
Labour diseconomies

Question 13

Management diseconomies

Answer 13

Lack of communication due to the large gap between workers and managers, thanks to the large size of the firm

Question 14

Labour diseconomies

Answer 14

When managers are overloaded with work and lose sight of their employees. They don’t stay in contact with them as much and they may not be as am valued.
Ex) Before the manager would go and check on them every week to see how they are doing and since the firm grew he only visits 2-3 times a month