Costs in the long run eo s

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Costs in the long run eo s

  1. 1. Costs in the long run:Costs in the long run: economies of scaleeconomies of scale
  2. 2. Learning outcomes Understand the economist’s concept of the long run Understand the different sources of economies of scale Explain what is meant be economies of scale
  3. 3. What have these in common? Colour printers for under £30 Free scanners Keyboards for less than £10 A mouse for the same price as a mouse mat CD and DVD players for less that £40!
  4. 4. The benefits of mass production Firms that are able to increase their SCALE of production are able to benefit from lower UNIT COSTS in the long run. The benefits of a larger scale of production are known as ECONOMIES OF SCALE Long run average cost falls as the scale of production rises
  5. 5. The impact of increasing scale Unit cost SRAC (scale 1) Output SRAC (scale 2) SRAC (scale 3) A larger scale of production allows a firm to operate on a lower short run average cost curve (SRAC)
  6. 6. The long run average cost curve Unit cost LRAC Output Economies of scale Diseconomies of scale Minimum Efficient Scale of production (MES)
  7. 7. Internal economies of scale Technical Purchasing and marketing Managerial Financial Risk bearing
  8. 8. Task 1 Use your textbooks and other resources to describe each of the internal economies of scale on the last slide.
  9. 9. Quick quiz The following quiz is designed to help you to assess whether you have understood the terms and concepts so far. Review your notes outside lessons if the quiz shows gaps in your understanding
  10. 10. Task 2 Read the information on the car industry and answer the questions set.

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