Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th edition
PART 5 Firm Behavior and the Organization of Industry
Chapter 13 of 36 – The Costs of Production
Section 23 of 23
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Figure 6 here
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The shape of the Figure 6 long-run Average Total Cost (ATC) curve shows how costs vary with the size of a firm's operations.
When long-run ATC decreases as output increases returns to scale (profits) increase as production increases.
When long-run ATC does not vary with the level of output there are constant returns to scale.
When long-run ATC increases as output increases returns to scale decrease as production increases.
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Along the red long-run ATC curve, Ford has
· economies of scale at low levels of output, ATC decreases as quantity of cars produced increases
· constant returns to scale at intermediate levels of output, ATC is constant as quantity of cars produced increases
· diseconomies of scale at high levels of output, ATC increases as quantity of cars produced increases
(end of chapter 13)
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Congratulations
! 13/36 = 36% of way to becoming a competent economist.
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