1. ECONOMIES AND
DISECONOMIES OF
SCALE

2. refers to the property whereby long-run average
total cost falls as the quantity of output increases.
explain the down sloping part of the long-run ATC
curve.
 “As plant size increases, a number of factors will
for a time lead to lower average costs of
production.”
ECONOMIES OF SCALE

3. Purchasing – purchase in bulk
Labor Specialization and Managerial
Specialization – increase in workers, increase in
efficiency
Efficient Capital – large and expensive
equipments
Financial – big business means better deals
Other Factors

4. refers to the property whereby long-run
average total cost rises as the quantity of
output increases.
 it is the rising portion of the long-run cost
curves
DISECONOMIES OF SCALE

5.  refers to the property whereby long-run
average total cost stays the same as the
quantity of output increases.
CONSTANT RETURNS TO SCALE

6. Economies
of Scale
long-run ATC
Averagetotalcost
Output

7. Constant returns
to scale
long-run ATC
Averagetotalcost
Economies
of Scale
Output

8. Economies
of Scale
Diseconomies
of Scale
long-run ATC
Averagetotalcost
Constant returns
to scale
Output

9.  Economies of scale:
ATC falls as Q increases.
 Constant returns to scale:
ATC stays the same as Q increases.
 Diseconomies of scale:
ATC rises as Q increases.