Economies of Scale and Long Run Average Cost (LRAC)
In the long run all costs are variable and the scale of production can change (i.e. no fixed inputs)
Economies of scale are the cost advantages from expanding the scale of production in the long run. The effect is to reduce average costs over a range of output
These lower costs represent an improvement in productive efficiency and can give a business a competitive advantage in a market. They lead to lower prices and higher profits – this is called a positive sum game for producers and consumers (i.e. the welfare of both will improve)
We make no distinction between fixed and variable costs in the long run
As long as the long run average total cost curve (LRAC) is declining, then internal economies of scale are being exploited.
The table below shows a numerical example of falling LRAC
Long Run Output (Units) Total Costs (£s) Long Run Average Cost (£ per unit)
1000 12000 12
2000 20000 10
5000 45000 9
10000 80000 8
20000 144000 7.2
50000 330000 6.6
100000 640000 6.4
500000 3000000 6
Returns to Scale and Costs in the Long Run
The table below shows how changes in the scale of production can, if increasing returns to scale are exploited, lead to lower average costs.
Factor Inputs Production Costs
(K) (La) (L) (Q) (TC) (TC/Q)
Capital Land Labour Output Total Cost Average Cost
Scale A 5 3 4 100 3256 32.6
Scale B 10 6 8 300 6512 21.7
Scale C 15 9 12 500 9768 19.5
Costs: Assume the cost of each unit of capital = £600, Land = £80 and Labour = £200
Because the % change in output exceeds the % change in factor inputs used, then, although total costs rise, the average cost per unit falls as the business expands from scale A to B to C
Examples of Increasing Returns to Scale
Much of the new thinking in economics focuses on the increasing returns available to growing businesses:
An example of this is the software and computer gaming industry.
The overhead costs of developing new software programs or computer games are huge - often running into hundreds of millions of dollars
The marginal cost of one extra copy for sale is close to zero, perhaps just a few cents or pennies
If a company can establish itself in the market, positive feedback from consumers will expand the installed customer base, raise demand and encourage the firm to increase production
Because marginal cost is low, the extra output reduces average costs creating economies of scale
1. stick to a budget
2.Pay your bills on time
3.Don't. buy or borrow what you can't repay
4.Don't max out your credit cards
5. Pay more than the minimum payment
The economy is experiencing a recession combined with inflation. The self-corrected school would say the proper response is to <u>do nothing</u>.
The first aspect that happens at some point in a recession is the financial system slows down. This means that businesses are producing less, and consumer spending is down. This will cause layoffs, as corporations try to cut costs. during this time, there's a significant decline in the demand for items and offerings.
Inflation is the rate of increase in costs over a given period of time. Inflation is normally an extensive measure, along with the general boom in costs or the increase in the value of residing in a country.
Inflation is a measure of the rate of rising costs of goods and services in a financial system. Inflation can occur whilst fees rise due to increases in production expenses, which includes raw substances and wages. A surge in demand for services and products can reason inflation as purchasers are willing to pay more for the product.
Learn more about recession here brainly.com/question/20597683
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Interpersonal skills are the skills used by a person to interact with others properly.
Answer:
federal loans are provided by the government and private loans are provided by banks, credit unions, and other financial institutions.
Explanation: