1. Costs in the long run:Costs in the long run:
economies of scaleeconomies of scale

2. Learning outcomes
Understand the
economist’s
concept of the
long run
Understand the different
sources of economies of
scale
Explain what is
meant be
economies of
scale

3. What have these in common?
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4. The benefits of mass production
Firms that are able to increase their SCALE of
production are able to benefit from lower UNIT
COSTS in the long run.
The benefits of a larger scale of production are
known as ECONOMIES OF SCALE
Long run average cost falls as the scale of
production rises

5. The impact of increasing scale
Unit cost
SRAC
(scale 1)
Output
SRAC
(scale 2)
SRAC
(scale 3)
A larger
scale of
production
allows a
firm to
operate on
a lower
short run
average
cost curve
(SRAC)

6. The long run average cost curve
Unit cost
LRAC
Output
Economies of scale Diseconomies of scale
Minimum
Efficient
Scale of
production
(MES)

7. Internal economies of scale
Technical
Purchasing
and
marketing
Managerial
Financial
Risk bearing

8. Task 1
Use your textbooks and other
resources to describe each of
the internal economies of scale
on the last slide.

9. Quick quiz
The following quiz is designed to
help you to assess whether you
have understood the terms and
concepts so far.
Review your notes outside lessons
if the quiz shows gaps in your
understanding

10. Task 2
Read the information on the car
industry and answer the
questions set.