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Economies of Scale | Assignment

   

Added on  2020-05-16

15 Pages2109 Words185 Views
Running Head: ECONOMIC ASSIGNMENT Economic AssignmentName of the StudentName of the UniversityAuthor note

ECONOMIC ASSIGNMENT 1Table of ContentsPart A: Microeconomics..................................................................................................................2Answer 1......................................................................................................................................2Answer 2......................................................................................................................................5Part B: Macroeconomics..............................................................................................................6Answer 1......................................................................................................................................6Answer 2......................................................................................................................................8Answer 3....................................................................................................................................10Answer 4....................................................................................................................................11

ECONOMIC ASSIGNMENT 2Part A: Microeconomics Answer 1 Economies of Scale The efficiency of a firm is determined from its size. The large firms expand from gain ineconomies of scale. The benefits of scale is defined in terms of its relative cost advantage. A firmis said to experience economies of scale when expanding production operation leads to acontinuous reduction in average production cost. This means a larger firm will attain a range oflower production cost as compared to other small competitors. This increases the risk of takeoverfor small competitors. There are both internal and external economies of scale. The internaleconomies of scale is related with expansion of the single firm. Different types of internaleconomy of scale involved technical economies, purchasing economies, administrative savingsand financial savings (Fine 2016). External economies of scale on the other hand arises fromexternal factors. Firms often enjoy a positive externality because of development of severalindustries or the economy as a whole. The average cost curve for most of the firms in the longrun is U shaped reflecting presence of external economies and diseconomies of scale.

ECONOMIC ASSIGNMENT 3Figure 1: Long run Average Cost (Source: as created by Author)The falling part of long run average cost curve indicates economies of scale. To the leftof minimum point of LAC, M economies of scale is present (Baumol and Blinder 2015). In economy, different forms of market exists depending on the presence of buyers andsellers, the nature of goods, extent of market power, barriers to entry and exists and others. Thepopularly known forms of market are competitive, monopoly, monopolistic competition andoligopoly. Economies of scales are more relevant for markets like monopolistic competition andmonopoly (Rader 2014).

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