blog




  • Essay / Difference between long-run and long-run production...

    There are many forces that can affect long-run costs, some controllable and some not. When long-run average cost decreases as production increases, economies of scale occur. Diseconomies of scale occur when long-run average cost increases as production increases. Technological changes and changes in input prices cannot cause unit costs to rise or fall. Large companies can divide production into specialized tasks to allow workers to become more productive and achieve economies of scale. Unit costs can also decrease from quasi-fixed inputs that do not change much as production increases. Technological factors, costs of capital goods and qualitative change in the production process can also contribute to economies of scale. When production increases, long-run average costs may increase if the business is poorly managed and disorganized. The larger the production facility, the more essential it becomes to have management capable of delegating responsibility and authority to middle management. To avoid diseconomies of scale, companies will divide production operations into separate divisions to control monitoring and control costs.