Answer to Question #176268 in Microeconomics for Tara

Question

Apply industry concepts of production and productivity theory; short run cost and revenue decisions; long run cost economies and dis economies of scale and profit maximizing decisions

Answer 1

Short run costs and revenue decisions; it is presumed that the existence of fixed costs, and only variable costs were permitted to change. Firms are forced to operate on a single average cost curve.

The long run costs economies and diseconomies of scale; the long run is the period of time in which all costs are variable. There are no expenditures that are fixed in the long run. In planning for the long run, the company will compare alternative manufacturing technologies. Economies of scale allow a firm to evaluate the best value production technology. It can consider the optimal scale for production, while diseconomies of scale may trigger a firm’s growth so large that it becomes so difficult to handle, resulting in unnecessarily high expenses.

Profit maximizing decisions; the firm will look for the production technology that will allow it to produce the desired volume of output at the least cost.

Ref:

Principles of economics by Rice University.