Increasing returns to Scale Capital machine hours Increasing Returns The

Increasing returns to scale capital machine hours

This preview shows page 119 - 132 out of 453 pages.

Increasing returns to Scale Capital (machine hours) Increasing Returns: The isoquants move closer together A Labor (hours) 10 20 30 5 10 2 4 0
Image of page 119
Returns to Scale Measuring the relationship between the scale (size) of a firm and output Constant returns to scale : output doubles when all inputs are doubled Size does not affect productivity May have a large number of producers Isoquants are equidistant apart
Image of page 120
Constant returns to Scale Capital (machine hours) Constant Returns: Isoquants are equally spaced 30 A 6 Labor (hours) 10 20 15 5 10 2 4 0
Image of page 121
Returns to Scale Measuring the relationship between the scale (size) of a firm and output Decreasing returns to scale : output less than doubles when all inputs are doubled Decreasing efficiency with large size Reduction of entrepreneurial abilities Isoquants become farther apart
Image of page 122
Decreasing returns to Scale Capital (machine hours) Decreasing Returns: Isoquants get further A Labor (hours) apart 10 20 30 5 10 2 4 0
Image of page 123
Returns to Scale in the U.S. Carpet Industry The carpet industry has grown from a small industry to a large industry with some very large firms. Can the growth be explained by the presence of economies to scale?
Image of page 124
Returns to Scale in the U.S. Carpet Industry Carpet Shipments, 1996 (Millions of Dollars per Year) 1. Shaw Industries $3,202 6. World Carpets $475 2. Mohawk Industries 1,795 7. Burlington Industries450 3. Beaulieu of America1,006 8. Collins & Aikman 418 4. Interface Flooring 820 9. Masland Industries 380 5. Queen Carpet 775 10. Dixied Yarns 280
Image of page 125