ChapC15 - 1 How to Study for Chapter 15 Costs of Production...

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1 How to Study for Chapter 15 Costs of Production in the Long Run Chapter 15 continues the principles concerning costs of production by bringing in the long-run. 1. Begin by looking over the Objectives listed below. This will tell you the main points you should be looking for as you read the chapter. 2. New words or definitions and certain key points are highlighted in italics and in red color. Other key points are highlighted in bold type and in blue color. 3. You will be given an In Class Assignment and a Homework assignment to illustrate the main concepts of this chapter. 4. There are several new words in this chapter. Be sure to spend time on the various definitions. There are also new calculations. Go over each carefully. Be sure you understand how each number was derived (do the calculations for yourself). Then, plot the calculations on graph paper to see how the graph is derived. Check your graphs against the one in the text. 5. Go over the graph very carefully. Be sure you can explain in your own words why each graph has the shape it has. 6. When you have finished the text, the Test Your Understanding questions, and the assignments, go back to the Objectives. See if you can answer the questions without looking back at the text. If not, go back and re-read that part of the text. When you are ready, take the Practice Quiz for Chapter 15. Objectives for Chapter 15 Costs of Production in the Long Run At the end of Chapter 15, you will be able to answer the following: 1. Define what is meant by the "long-run" . 2. Explain what is the long-run average total cost and how it is derived. 3. Explain what is meant by "economies of scale" and why they exist? 4. Explain what is meant by “learning by doing” or the “learning curve” and what is meant by “dynamic increasing returns to scale” . 5. Explain what is meant by "diseconomies of scale" and why they exist. 6. Explain what is meant by "constant returns to scale" . 7. What does the long-run average total cost actually look like for most products? 8. Explain what is meant by "minimum efficient scale" and what has been happening to it over time? Why has this been happening? 9. Explain what is meant by “economies of scope” and why they exist. Why are economies of scope important in knowledge-based companies? 10. What is a “first mover advantage” ? Chapter 15 Costs of Production in the Long Run (latest revision June 2004) In the last chapter, the long-run was defined as the time period in which all factors of production are variable . We can now vary the amount of capital. We can expand or contract the size of the business. Or perhaps a new business can enter the industry or an existing business can go out of business permanently.
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