What are economies of scale and diseconomies of scale? How do ...

[evelyn o bentley]

What are economies of scale and diseconomies of scale? How do they arise? What do they imply for the shape of the LRAC curve?
 
  What will be an ideal response?

Question 2

A product is considered to be rival if
 
  A) your consumption of the product reduces the quantity available for others to consume.
  B) you can keep those who did not pay for the item from enjoying its benefits.
  C) you cannot keep those who did not pay for the item from enjoying its benefits.
  D) it is jointly owned by all members of a community.

[fauacakatahaias]

Answer to Question 1

Economies of scale are features of a firm's technology that lead to falling long-run average cost (LRAC) as output increases. As plant size increases, the minimum attainable average total cost (ATC) for each plant size falls with output. Diseconomies of scale are features of a firm's technology that lead to rising LRAC as output increases. As plant size increases, the minimum attainable ATC for each plant size rises with output. A firm initially experiences economies of scale up to some output level and over this range of output the LRAC curve is downward sloping as output increases. Beyond that output level, it may move toward diseconomies of scale. When there are diseconomies of scale, the LRAC slopes upward as output increases, resulting in a U-shaped LRAC curve.

Answer to Question 2

A