ECON 2 Lecture Notes - Lecture 8: Diminishing Returns
11 May 2020
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Document Summary
Diseconomies and economies of large scale production. It is not the result of rising resource prices or the law of diminishing returns. First, our discussion assumes that resource prices are constant and second the law of diminishing returns does not apply to production in the long run. This is true because the law of diminishing returns only deals with situations in which a productive resource or input is held constant. Under our definition of long run, all resources and inputs are variable. Economies of scale: or economies of mass production, explain the downsloping part of the long run atc curve. A plant size increases, a number of factors will for a time lead to lower average costs of production. Increased specialization in the use of labor becomes more achievable as plant size increase. Hiring more workers means jobs can be divided and subdivided.
