Economies+of+Scale

Economies to scale is a term used to describe a state in which a firm is not completely effiecient. In this state, the lower the output is, the higher the cost of each unit will be. In a long run production cost graph economies to scale is represented at the very left of the graph, from when the output is zero to when the average total cost line is parallel with the x-axis. This state is undesirable for a firm because the average total cost for each unit of product is much higher than it could be. The reason economies to scale exists is because of many things, one such factor is labor specialization which means that th laborers for the firm are not qualified to efficient at producing the product. Another common reason is that the capital goods are not being efficiently used, because if only unit is being produced from expensive tools then the average total cost will be very high for the product. The main factor in economies to scale is that the fixed cost is the same for producing 1 product as it is for producing 1000 products so the profits and average total cost will be higher. Sometimes economies to scale is desirable for small or new firms because it forces them to grow and produce more, which raises supply and lowers costs for consumers. Economies to scale can be easily fixed or avoided by simply producing more of the product. **Video:** media type="youtube" key="VfLw16QU9qM" height="344" width="425" This video is an excellent example of an economy of scale. This guy who is trying to build a computer by himself is extremely inefficent in his use of resources and time, in order to be effecient, he needs to buy a factory and many more resources in order to produce many more computers for his business to be effecient.
 * Economies to Scale**

**Picture:** This graph illustrates economies of scale, by showing how the cost greatly outweigh the production towards the beginning of the curve. As you can see on the graph, as the firm is increasing production by utilizing more resources, the production increases, the costs significantly drop as the firm is now using money and resources more effeciently per unit of product. ** Links:** [|Wikipedia- Economies of Scale] [|What are Economies of Scale?] [|Blog Article Relating Economies of Scale to Real World] Which one of the following is an easy way for a firm to move from economies to scale to constant returns to scale? A. Produce less B. Produce more C. Stop producing D. Do nothing
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