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Slide 2

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Production in the Long-Run
(Returns to Scale)
All Factors of production Returns to Scale
are variable
This means that the firm
can temporarily
overcome the problem of
diminishing returns
But this (problem of
diminishing returns) can
re-emerge as soon as
the fixed factor becomes
overloaded…read more

Slide 3

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Long-Run Costs Curve #1
LRAC
(Long run average
cost curve #1)
Falling long-run
average costs
are known as
Economies of Scale (Q1­Q3)
Rising long-run average costs are known as
Diseconomies of Scale (Q3-Q5)
Q3 = Minimum efficient scale (Optimum Output) size
of a Firm.…read more

Slide 4

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Long-Run Costs Curve #2
LRAC
(Long run average
cost curve #2)
Q1 Q2
(Q1 ­ Q2) = Minimum efficient scale (MES)
this is the lowest point on the long-run average cost curve and is
also known as the output of long-run productive efficiency.…read more

Slide 5

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Returns to Scale
Returns to scale ONLY occurs in the long-run.
With returns to scale there are 3 possibilities:
1. Increasing returns to scale
2. Decreasing returns to scale
3. Constant returns to scale…read more

Slide 6

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Returns to Scale
1. Increasing returns to scale - where an increase in factor
inputs leads to a more than proportionate increase in outputs.
2. Decreasing returns to scale - where an increase in factor
inputs leads to a less than proportionate increase in outputs.
3. Constant returns to scale - where an increase in factor inputs
leads to a proportionate increase in outputs.…read more

Slide 7

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Comments

davidsalter

This is a good visual revision resource for long run production including the graphs for economies of scale.

izzy

GREAT

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