Economies of Scale

Economies of Scale. Economies of scale are traditionally defined as "a fall in the long run average cots of production as output rises" (Anderton). Figure 1 shows how economies of scale and diseconomies of scale occur in a graphical form. Figure 1 The long run average cost curve is U-shaped because long run average costs: 1.at first fall over the output up until output O, showing economies of scale 2.then rise again when output exceeds the point …

…and talked how they can be used in understanding industrial structure. Through all the sources we can understand how companies can reach their MES by making use of economies of scale. This in turn helps to see how/why companies make decisions to try and increase profits, and when they do how they can re-invest the money, again to get closer to their MES. Bibliography Economics For Business 2nd Edition, John Sloman and Mark Sutcliffe