Podcast
Questions and Answers
How do advancements in technology potentially impact the operational efficiency of smaller firms?
How do advancements in technology potentially impact the operational efficiency of smaller firms?
- They primarily benefit larger firms, widening the efficiency gap.
- They may allow smaller firms to operate as efficiently as larger ones. (correct)
- They have no impact on the operational efficiency of smaller firms.
- They consistently increase operational costs for smaller firms.
What characterizes economies of scale in production?
What characterizes economies of scale in production?
- Increasing production leads to lower average cost per unit. (correct)
- Increasing production leads to higher average cost per unit.
- Decreasing production leads to lower average cost per unit.
- Production volume has no impact on the average cost per unit.
What is a primary reason for diseconomies of scale in very large firms?
What is a primary reason for diseconomies of scale in very large firms?
- Greater flexibility in adapting to market changes.
- Reduced layers of management leading to quicker decision-making.
- Inefficiencies such as communication issues and complex management structures. (correct)
- Enhanced communication efficiency due to advanced technologies.
How does the long-run average cost (LRAC) curve help firms make strategic decisions?
How does the long-run average cost (LRAC) curve help firms make strategic decisions?
In making production technology choices, what trade-off do firms typically consider?
In making production technology choices, what trade-off do firms typically consider?
How can innovations in technology shift the long-run average cost (LRAC) curve?
How can innovations in technology shift the long-run average cost (LRAC) curve?
If a market demands 1 million units of a product, how does the shape of the LRAC influence the number of firms that can effectively compete if firms operate efficiently between 5,000 and 20,000 units?
If a market demands 1 million units of a product, how does the shape of the LRAC influence the number of firms that can effectively compete if firms operate efficiently between 5,000 and 20,000 units?
In winner-take-all markets, what is a key factor enabling large firms to dominate, as exemplified by companies like Microsoft and Amazon?
In winner-take-all markets, what is a key factor enabling large firms to dominate, as exemplified by companies like Microsoft and Amazon?
What was a significant inefficiency observed in the Soviet Union's large factories?
What was a significant inefficiency observed in the Soviet Union's large factories?
How does the potential for small firms to reach broader markets due to technology affect market dynamics?
How does the potential for small firms to reach broader markets due to technology affect market dynamics?
Flashcards
Economies of Scale
Economies of Scale
When increasing production lowers the average cost per unit.
Diseconomies of Scale
Diseconomies of Scale
Inefficiencies that arise when firms become too large, such as communication issues and management layers.
Long-Run Average Cost Curve (LRAC)
Long-Run Average Cost Curve (LRAC)
Illustrates how costs change with different levels of output in the long run.
Labor vs. Capital
Labor vs. Capital
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Impact of New Technologies
Impact of New Technologies
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Winner-Take-All Markets
Winner-Take-All Markets
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Constant Costs
Constant Costs
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LRAC Curve Influence
LRAC Curve Influence
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Oligopoly
Oligopoly
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Study Notes
Impact of Technology on Firm Size
- New technology enables smaller firms to operate as efficiently as larger firms.
- Traditional tire plants produce about 6 million tires annually.
- Pirelli’s new factory uses robotics to produce 1 million tires at a lower average cost.
- Technology helps small firms reach markets beyond local areas.
- Large firms may dominate markets by leveraging technology.
- Examples of large firms include Microsoft and Amazon.
Economies and Diseconomies of Scale
- Economies of scale occur when increasing production lowers the average cost per unit.
- Inefficiencies, such as communication issues, may arise as firms grow too large, leading to diseconomies of scale.
- The Soviet Union’s large factories operated inefficiently due to government protection from competition.
Long-Run Average Cost Curve (LRAC)
- The LRAC illustrates how costs change with different levels of output.
- Firms can produce at constant costs within a specific output range (e.g., 5,000 to 20,000 units).
Production Technology Choices
- Firms can choose between labor-intensive and capital-intensive methods.
- Firms choose to hire workers for manual tasks or invest in automated systems.
- Innovations can shift the LRAC, affecting firm size distribution.
- Recent advancements allow for smaller-scale production, for example, natural gas turbines producing under 100 megawatts.
Market Structure Implications
- The shape of the LRAC curve influences how many firms can compete effectively.
- If the market demands 1 million dishwashers, firms producing 5,000 to 20,000 units can coexist.
- Low demand may lead to oligopolies, where only a few firms dominate the market.
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