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Page 105, 4+5 - For example if the minimum efficient scale...

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Page 105. 4+5 1. Theorists suggest that a firm is unlikely to run into diseconomies of scale after achieving all possible economies of scale, then its long-run average total cost curve would still retain its “U” shape but it would be a wide “U” as depicted below. 2. A) minimum efficient scale: the smallest output that a plant (or firm) can produce such that its long run average costs are minimized. b) This concept is useful in determining the likely market structure of a market.
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Unformatted text preview: For example if the minimum efficient scale is small in relation to the size of the market, a large number of firms operate in the market. The firms will be likely to behave in a perfectly competitive manner due to the large number of competitors. Inversely, if the MES is large in relation to the market size, it is predicted that there aren’t that many operating firms in the market....
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