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?
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.
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The opportunity cost of an activity is
A) the dollar cost to engage in the activity. B) the value of the resources needed to conduct the activity. C) the same for all who participate in the activity. D) what you sacrifice to engage in the activity.
When money serves as a standard for comparing values of different things, it is functioning as a
A) store of value. B) hedge against inflation. C) standard of deferred payment. D) unit of accounting.