Three possibilities constant returns to scale

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ts by the same percentage. Three possibilities: • Constant returns to scale • Increasing returns to scale • Decreasing returns to scale Economies of Scale Economies Output (pizza per day) 1 Oven 2 Oven 3 Oven 4 Oven Labour 1 2 3 4 5 Ovens Ovens (number) 10 15 18 20 21 1 Marginal product of labour decreasing 4 10 13 15 16 2 13 18 22 24 25 3 15 21 24 26 27 4 Marginal product of capital decreasing Long-Run Average Cost Long-Run Curve Curve Diseconomies Diseconomies Economies of scale of scale of 12.00 12.00 ATC1 10.00 8.00 6.00 ATC3 ATC4 MES Least-cost plant is 1 LRAC curve Least-cost plant is 2 0 ATC2 5 10 15 Least-cost plant is 3 18 20 Least-cost plant is 4 2425 30 Short-Run Costs Short-Run Q TFC TVC TC MC AFC AVC ATC 0 1 4 2 2 3 4 4 3.67 25...
View Full Document

This document was uploaded on 03/13/2014.

Ask a homework question - tutors are online