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Economics: Costs

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1. What is the difference between diminishing returns and decreasing returns to scale? What kind of returns to scale are possible/observed in your organization? Why? What is the relationship between returns to scale and cost curves? Can you assess the shape of the long-run average cost curve for your organization? You do not need to estimate the cost function, merely, on the basis of your knowledge of your firm, what do you think the curve looks like and why?

2. What are the production costs for your organization? What are the fixed costs? The variable costs? What economic costs does your firm likely overlook when computing its "profits"? Explain the profit maximizing condition in terms of your organization. If you work for a "nonprofit" firm, what do you think is the appropriate level of output for your firm? Why?

3. With the popularity of new high protein diets like the Atkins diet (which encourage larger consumption of meat products at the expense of carbohydrates and sugars), what kind of effect do you expect to see on the equilibrium price and quantity of meat. Explain your answer in terms of shifts in demand and supply of meat and meat products.

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// As per the requirements of the paper, the first section explains about the diminishing returns and decreasing returns to scale. It explains the kinds of 'returns to scale' observed in an Organization. It also discusses about the relationship between 'returns to scale and cost curves'. The shape of the long-run average cost curve is assessed for an Organization. //

1.

The diminishing returns are enforced only for the short-term. The condition for the diminishing return is that only one element of variable is increased and rests of the factors show the constant nature. There is an increase in the marginal factor of the product when variable factor of production is increased. But sometimes the marginal factor can be decreased. Return to scale is one of the proficient dimensions of the production. The changes in the output consequent to a relative change in all inputs are examined by the return of scale. The decreasing return to scale is observed when the output increases less than the proportional change.

The important factors for the diminishing return to scale is the diminishing return to the management, I.e. Managerial diseconomies. As the size of the firm expands, management efficiency decreases, which leads to the diminishing return to scale. The decreasing return to scale can be seen when inputs are doubled and outputs are less than doubled (Dwivedi, 2004).

The possible return to scale in my organization can be: increasing return to scale, decreasing return to scale and constant return to scale. ...

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