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Efficient scale is the smallest amount of production a company can achieve while still taking full advantage of economies of scale with regards to supplies and costs. In classical economics, the minimum efficient scale is defined as the lowest production point at which long-run total average costs (LRATC) are minimized.
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What does it mean if a firm has excess capacity?
a firm has excess capacity if it produces below its efficient scale, whcih is the quantity at which total cost is a minimum.
External economies of scale?
Infrastructure (Ex: Access to educated workforce/available roads etc.) It is simply the factors which a firm does not have a control over but that can make a firm more efficient. Roads can reduce transportation costs meaning that the firm is more efficient.
What is the scale effect economics?
The scale effect indicates what happens to the demand for the firm's inputs as the firm expands production. As long as capital and labor are "normal inputs," the scale effect increases both the firm's employment and capital stock.
Why specialization leads to economies of scale?
As individuals specialize in a specific, narrower task in a firm, they become more knowledgeable and so more efficient. This leads to a decrease in long run average costs.
What meaning o minimum efficient scale?
Minimum efficient scale (MES) is a term used in industrial organization to denote the smallest output that a plant (or firm) can produce such that its long run average costs are minimized. This concept is useful in determining the likely market structure of a market. For instance, if the minimum efficient scale is small relative to the overall size of the market (demand for the good), there will be a large number of firms. The firms in this market will be likely to behave in a perfectly competitive manor due to the large number of competitors.
What is Efficient scale?
Scale efficiency is the potential productivity gain from achieving optimal size of a firm
What does it mean if a firm has excess capacity?
a firm has excess capacity if it produces below its efficient scale, whcih is the quantity at which total cost is a minimum.
External economies of scale?
Infrastructure (Ex: Access to educated workforce/available roads etc.) It is simply the factors which a firm does not have a control over but that can make a firm more efficient. Roads can reduce transportation costs meaning that the firm is more efficient.
What is the scale effect economics?
The scale effect indicates what happens to the demand for the firm's inputs as the firm expands production. As long as capital and labor are "normal inputs," the scale effect increases both the firm's employment and capital stock.
When evaluating the operating efficiency of a firm's managers What ratio would you look at?
When evaluating the operating efficiency of a firm's managers, you would look at the Asset Evaluation Ratio.
Why specialization leads to economies of scale?
As individuals specialize in a specific, narrower task in a firm, they become more knowledgeable and so more efficient. This leads to a decrease in long run average costs.
What is it called when a firm issues periodic reports?
periodic reports of a firm's financial position or operating results.
What is large firm?
large firm means when a business has expand in order to benefit from economies of scale
Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would probably look primarily at the firm's?
Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would probably look primarily at the firm's Asset Utilization Ratios.
What are the importance of operating leverage?
help to judge risk in the firm
What meaning o minimum efficient scale?
Minimum efficient scale (MES) is a term used in industrial organization to denote the smallest output that a plant (or firm) can produce such that its long run average costs are minimized. This concept is useful in determining the likely market structure of a market. For instance, if the minimum efficient scale is small relative to the overall size of the market (demand for the good), there will be a large number of firms. The firms in this market will be likely to behave in a perfectly competitive manor due to the large number of competitors.
What is the difference between returns to scale and economies of scale in terms of their impact on a firm's production efficiency and cost structure?
Returns to scale refer to the change in output when all inputs are increased proportionally, while economies of scale refer to the cost advantages a firm gains as it increases its production levels. Returns to scale can impact a firm's production efficiency by affecting the overall output, while economies of scale can impact a firm's cost structure by reducing the average cost per unit as production increases.
