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    Economies of Scale and Scope

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    gregbaccay
    1) As output increases, marginal costs and eventually average costs increase due to diminishing returns. 2) Economies of scale occur when average costs fall with increasing output due to factors like learning curves. 3) Economies of scope exist when the joint production of multiple products costs less than producing them separately, lowering average costs.

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    Economies of Scale and Scope

    Uploaded by

    gregbaccay
    60 views9 pages
    1) As output increases, marginal costs and eventually average costs increase due to diminishing returns. 2) Economies of scale occur when average costs fall with increasing output due to factors like learning curves. 3) Economies of scope exist when the joint production of multiple products costs less than producing them separately, lowering average costs.

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    1) As output increases, marginal costs and eventually average costs increase due to diminishing returns. 2) Economies of scale occur when average costs fall with increasing output due to factors like learning curves. 3) Economies of scope exist when the joint production of multiple products costs less than producing them separately, lowering average costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    60 views9 pages

    Economies of Scale and Scope

    Uploaded by

    gregbaccay
    1) As output increases, marginal costs and eventually average costs increase due to diminishing returns. 2) Economies of scale occur when average costs fall with increasing output due to factors like learning curves. 3) Economies of scope exist when the joint production of multiple products costs less than producing them separately, lowering average costs.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 9

    ECONOMIES OF SCALE AND SCOPE

    MANAGERIAL ECONOMICS -
    INCREASING MARGINAL COST

     Law of Marginal Returns states that as you try to expand output, your marginal productivity (the extra output
    associated with extra inputs) eventually declines.
     Diminishing marginal productivity implies increasing marginal cost.
     Increasing marginal costs eventually lead to increasing average costs.
    ECONOMIES OF SCALE

     If long-run average are constant with respect to output, then you have constant returns to scale.
     If long run average costs rise with output, you decreasing returns to scale or diseconomies of scale.
     If average costs fall with output, you have increasing returns to scale of economies of scale.
    LEARNING CURVES

    QUANTITY MARGINAL COST (in TOTAL COST (in million AVERAGE COST (in
    million pesos) pesos) million pesos)
    1 100.0 100 100
    2 80 180 90
    3 70.2 250.2 83.4
    4 64 314.2 78.6
    5 59.6 373.8 74.8
    6 56.2 429.9 71.7
    7 53.4 483.4 69.1
    8 51.2 534.6 66.8
    9 49.3 583.9 64.9
    10 47.7 631.5 63.2
    ECONOMIES OF SCOPE

     If the cost of producing two products jointly is less than the cost of producing those two products separately – that
    is,
    Cost(Q1,Q2) < Cost(Q1) + Cost(Q2)
    DISECONOMIES OF SCOPE

     Happens if the cost of producing two products together is higher than the cost of producing them separately.
    QUESTIONS

     As a golf club production company produces more clubs, the average total cost of each club produced decreases.
    This is because:
    a) Total fixed costs are decreasing as more clubs are produced
    b) Average variable cost is decreasing as more clubs are produced
    c) There are scale economies
    d) Total variable cost is decreasing as more clubs are produced
    QUESTIONS

     What might you reasonably expect of an industry in which firms tend to have economies of scale
     Exceptional competition among firms
     A large number of firms
     Highly diversified firms
     A small number of firms
    QUESTIONS

     Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following
    exhibits economies of scope?
     50, 175, 120
     50, 75, 125
     50, 75, 130
     All of the above

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