Class 9s - Department of Economics LeBow College of...

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Fall 2009 LeBow College of Business Economics 301 Drexel University Professor Stehr Class 9 Outline 1) Long run cost continued 2) Short run profit maximization in perfect competition Long Run Cost Economies of scale— Diseconomies of scale— Note: Returns to scale and economies of scale are different concepts Returns to scale asks what happens to output if you increase inputs in equal proportions; economies of scale asks what happens to cost if you increase output where the input mix is free to vary to achieve the lowest possible cost. As output increases, firms are likely to experience economies of scale, at least to a point, for several reasons 1) 2) But, the firm may eventually experience diseconomies of scale because of 1) 2) Management becomes increasingly complex and inefficient as the number of tasks multiplies at higher output Result is that long run average cost curve decreases as output increases, but eventually may rise. 1
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Class 9s - Department of Economics LeBow College of...

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