Economies of Scale
Economies of scale is a concept that applies to the long run, a span of time in which all inputs can be varied by the firm so that there are no fixed inputs or fixed costs. Production may be subject to economies of scale (or diseconomies of scale). Economies of scale are said to exist if an additional unit of output can be produced for less than the average of all previous units— that is, if long-run marginal cost is below long-run average cost, so the latter is falling. Conversely, there may be levels of production where marginal cost is higher than average cost, and average cost is an increasing function of output. For this generic case, minimum average cost occurs at the point where average cost and marginal cost are equal (when plotted, the marginal cost curve intersects the average cost curve from below); this point will not be at the minimum for marginal cost if fixed costs are greater than 0.
Read more about this topic: Marginal Cost
Famous quotes containing the word scale:
“It is in vain that we would circumscribe the power of one half of our race, and that half by far the most important and influential. If they exert it not for good, they will for evil; if they advance not knowledge, they will perpetuate ignorance. Let women stand where they may in the scale of improvement, their position decides that of the race.”
—Frances Wright (1795–1852)