Economies of Scale/Scope, Learning Curve

economies/diseconomies of scale  

• input proportions change >> expansion path no longer a straight line
• firm can double output for less than twice the cost >> economies of scale
• firm needs more than twice the cost to double output >> diseconomies of scale
• E_C (cost-output elasticity) = MC/AC
  • E_C < 1 >> economy of scale
  • E_C > 1 >> diseconomies of scale
  • E_C = 1 >> neither economies or diseconomies of scale

economies/diseconomies of scope  

• joint output of single firm is greater than output by 2 separate firms >> economies of scope
• joint output of single firm is less than output by 2 separate firms >> diseconomies of scope
  • if production of 1 product conflicted w/ production of 2nd when both produced together jointly
• SC = [C(Q₁) + C(Q₂) - C(Q₁,Q₂)] / C(Q₁,Q₂)
  • measures degree of economies of scope
  • SC > 0 >> economies of scope
  • SC < 0 >> diseconomies of scope

learning curve - long term introduces new information to increase efficiency  

• workers/managers can become better adapted to their jobs, more experienced, more efficient >> long-term average cost can decrease
• learning curve describes relation between output and amount of inputs needed for each output
• L = A + BN^-b
  • N = units of output produced
  • L = labor input per output unit
  • A, B, b constants (where A, B positive and 0 < b < 1)
  • larger b >> more important learning effect
• economies of scale moves along the average cost curve, learning curve shifts the average cost curve downwards