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Long Run Average Total Cost Curve
What is the shape of the Long Run Average Total Cost Curve?
Causes of Economies of Scale
2 Management Specialization
3 Efficient Use of Capital
4 Efficient Use of By-Products
A: With more workers, firms can subdivide the work. Workers can become more efficient and faster at their job.
B: With more managers, the firm can subdivide the work of management, into specialized jobs. Each job can then be done more efficiently.
C: Many Technologies work most efficiently (cheaply) in larger production batches.
D: Firms cut costs by using all of the raw materials that they purchase by find new products.
Causes of Diseconomies of Scale
2 Communication Problems
3 Coordination and Control Problems
A: - Large numbers of unhappy workers require ever larger numbers of supervisors, who do not directly produce, but must be paid.
B:- In all firms, information is lost or distorted as it is passed up and down in large bureaucracies.
C: - Control and coordination is hard to maintain in large bureaucracies.
For all of these reasons, companies that become too large experience diseconomies of scale.
History tells us that companies become more efficient as they become larger, but that if they get too large, they become inefficient.
What will happen to all of these companies that have recently merged?.