Copyright © Texas Education Agency, 2011. All rights reserved.
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the property of the Texas Education Agency and may not be reproduced without the express written permission of the
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Copyright © Texas Education Agency, 2011. All rights reserved.
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Factors that cause a producer’s average cost per unit
to fall as output rises. Factors may be:
 Internal - cost reduction due to technological and
management factors
 External - cost reduction due to the effect of
technology in an industry
Ford Motor Company was able to mass produce
affordable cars in minimal time because of
economies of scale.
Copyright © Texas Education Agency, 2011. All rights reserved.
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Increase in long-term average cost of production
as the scale of operations increases beyond a certain
level. May be caused by:
 over-crowding where men and machines get in
each other's way,
 greater wastage due to lack of coordination
 a mismatch between the optimum outputs of
different operations
Copyright © Texas Education Agency, 2011. All rights reserved.
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A graph of the costs of production as a function of
total quantity produced.
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Used to find the optimal point of production, where
companies make the most profits.
Copyright © Texas Education Agency, 2011. All rights reserved.
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Captures the relation between cost per unit and the
level of output, ceteris paribus.
Firms organize their factors of production in such a
way that the average cost of production is at lowest
point and intersects Marginal Cost.
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Depicts what the minimum per-unit cost of
producing a certain number of units would be if
all productive inputs could be varied.
U-shaped
Reflects economies of scale when negatively-sloped
and diseconomies of scale when positively sloped.
Copyright © Texas Education Agency, 2011. All rights reserved.
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


Depicts what the minimum per-unit cost of
producing a certain number of units would be if
all productive inputs could be varied.
U-shaped
Reflects economies of scale when negatively-sloped
and diseconomies of scale when positively sloped.
Copyright © Texas Education Agency, 2011. All rights reserved.
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Production process with neither economies nor
diseconomies of scale.
The output of the process increases or decreases
simultaneously and in step with increase or decrease
in the inputs.
A plant with constant returns to scale is equally
efficient in producing small batches as it is in
producing large batches.
Copyright © Texas Education Agency, 2011. All rights reserved.
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Describe economies of scale.
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Compare short-run and long-run curves.
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What is meant by diseconomies of scale?
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Describe constant return of scale.
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What is the difference between diminishing returns
and economies of scales?
Copyright © Texas Education Agency, 2011. All rights reserved.
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