How can the extent to which the presence of economies and diseconomies of scale in an industry help account for the size and the number of firms in that industry? That is, if economies of scale are quite extensive in a particular industry, would you expect a large number of relatively small firms or a small number of relatively large firms operating within that industry? What if diseconomies of scale set in at a relatively small output level?
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Economy of scale describes the shape of the long run average total cost curve. If LRATC rises proportionately less than output, the firm is said to have economies of scale. The LRATC slopes downward. In other words, each additional unit of output costs it less than the prior one. In this case, the ...
How economies of scale determines the shape of the long run average total cost curve