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Unformatted text preview: ECON1110 TA Section 10 Professor Jennifer Wissink TA Jingxian Zheng April 2, 2009 1 Concepts Review 1. Short run cost curves 7-→ Long run cost curves In the short run, there is at least one fixed factor. While in the long run, there is no fixed factor, so firms can choose scale production flexibly. (Graph 1) 2. Long-run Equilibrium (Graph 2) 3. Economy and Diseconomy of scale (Graph 3 & 4) Internal Economy of Scale An increase in a firm’s scale of production leads to lower cost per unit produced, a.k.a. increasing returns to scale. Internal Diseconomy of Scale An increase in a firm’s scale of production leads to higher cost per unit produced, a.k.a. decreasing returns to scale. Constant Returns to Scale The cost doesn’t change with increase in a firm’s scale of pro- duce. External Diseconomy of Scale In the industry, the minimum average total cost increases as the size of the market grows. Then the industry long-run supply curve is upward sloping. (e.g., the increase of cost may be caused by the increase of factors’ prices). It issloping....
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- Fall '08
- Economics, Economics of production, auto industry, industry long-run supply