Economies of Scale PDF

Summary

This document contains a graph illustrating economies of scale. The graph shows how average cost decreases as output increases up to a certain point. This concept is important in understanding the costs associated with production in businesses and economics.

Full Transcript

## Economies of Scale The image shows a graph that plots the long-run average costs (LRAC) faced by a firm against its level of output. The graph: - Y-axis: Average Cost - X-axis: Output - Curve: LRAC. It is downwards sloping when output is between Q1 and Q2, and upwards sloping for outputs highe...

## Economies of Scale The image shows a graph that plots the long-run average costs (LRAC) faced by a firm against its level of output. The graph: - Y-axis: Average Cost - X-axis: Output - Curve: LRAC. It is downwards sloping when output is between Q1 and Q2, and upwards sloping for outputs higher than Q2. The description of the image explains: - When the firm expands its output from Q1 to Q2, its average cost falls from C1 to C2. - Thus, the firm can be said to experience **economies of scale** up to output level Q2.

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