<p>Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producers average cost per unit to fall as scale is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility, or scale, increases</p>
<p>Basically its like one of those websites where one can buy with bulk. Buy 1? $10. Buy 10? $10.01.</p>
<p>Thanks CrzyGmer and HYM, this is very nicely put: “They are factors that cause a producer’s average cost per unit to fall as scale is increased.”</p>
<p>This is how we study for Macro in class
[YouTube</a> - “Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem](<a href=“http://www.youtube.com/watch?v=d0nERTFo-Sk]YouTube”>http://www.youtube.com/watch?v=d0nERTFo-Sk)</p>
<p>Can someone explain increasing returns (to scale), decreasing returns (to scale), and constant returns (to scale)?</p>
<p>@motion</p>
<p>Think of a bakery. </p>
<p>This bakery is just getting started. They can only afford to hire a few workers and get one or two machines. They aren’t producing much revenue at this point relative to their operating costs. However, when they expand their operations (via opening new shops, investing in more capital, hiring more workers) their revenue starts expanding faster than their costs. This represents increasing returns to scale, or the downsloping part of the ATC curve. The more they produce, the less their average costs are. “The bigger the better” is the motto for this part. It is in the bakery’s best interest to expand production as much as possible.</p>
<p>The next segment that the bakery will encounter is constant returns to scale. They will reach a point at production where increasing production will no longer be better. Average costs will plateau and no longer lower with any additional units. This is where businesses want to operate because it represents the lowest possible ATC (the straight portion of the ATC curve). </p>
<p>If the bakery decides to keep expanding production past this straight portion of the ATC curve, they will encounter decreasing returns to scale, or the upward sloping portion of the ATC curve. They will be over-utilizing resources, hiring too many workers and investing in capital they do not need. Things will become congested and ATC will skyrocket as a consequence. This is the one area of the ATC curve businesses absolutely do not want to operate in. Their best option would be producing less. </p>
<p>Note that the terminology can also be represented as economies of scale (increasing returns), constant returns to scale and diseconomies of scale (decreasing returns).</p>
<p>Just think of it as having businesses find a happy medium. McDonalds would be ridiculous to make just 4 burgers per restaurant and they would be just as ridiculous to produce 2 million burgers per restaurant. </p>
<p>Also note that economies to scale can be a barrier to entry and that this is part of the concept of a natural monopoly. A company like NASA has gigantic economies to scale because to reach constant returns you need a lot of capital - spaceships, satellites, all sorts of training facilities. If NASA were a privatized company, it would most likely be a monopoly because no new business can enter and acquire the necessary capital quickly enough to compete with NASA.</p>
<p>JUST STARTED TO CRAM !!!</p>
<p>Wow I got 4 days to cram 2 self study test =)</p>
<p>Gl everyone</p>
<p>I don’t understand foreign exchange markets, how do you increase or decrease supply/demand for a currency?
Is supply just printing more money, or is it also related to all the fiscal/monetary policy?
Is demand just exporting your goods to other countries?</p>
<p>@zhangm94</p>
<p>It is related to fiscal policy.</p>
<p>If the economy is trying to expand. The gment will cut taxes and increase spending. Often the gment will borrow money from foreign countries. This will cause the supply of loanable funds to shift inwards. Therefore, the interest rates for loans will increase and the supply of loans will decrease.</p>
<p>When the interest rates increase. Foreign investors will want to invest in your country (because they like the high interest rates). Thus, the demand of your country’s dollar increases. Thereby, the “strength of the dollar” in your country also increases.</p>
<p>The supply of currency - in terms of fiscal period - is the amount of “dollars” in the supply of loanable funds.</p>
<p>3 APs in 3 days gonna be 3 fun days. I may have some questions on macro, probably post them tonight/tomorrow.</p>
<p>Does anyone have any good study tips for the AP Microeconomics exam this Thursday? I have a review book, which should be enough content-wise, but any additional tips or strategies as far as the structure of the exam would be appreciated.</p>
<p>hmmm does anyone have any macro/micro past exams they’d be willing to share? i can’t seem to find any helpful threads anywhere? [there were a kajillion for bio!]</p>
<p>I have my finals for Micro/Macro tomorrow and then the AP tests Thursday, this is going to be fun.</p>
<p>I just need to memorize the graphs that I forgot for the FRQ. During the practice ones I didn’t go with my gut and did poorly, so I got 4’s on both. I really hate the easier tests with the harder curves, it is better to have difficult material with a generous curve.</p>
<p>A constant cost perfectly competitive industry is in long run equilibrium. If the demand for the good increases, which of the following will occur in the long run?</p>
<p>A: price will remain unchanged
B: price increases
C: price decreases
D: econ profits will increase
E: econ profits will decrease</p>
<p>Answer is A, but shouldn’t it be B???</p>
<p>it says in the LONG RUN - meaning that price and quantity will always stay in equilibrium. For the short run, price and quantity can change</p>
<p>so it has nothing to do with the “constant cost” industry part?</p>
<p>Also, I’ll take a guess on what happens in the long run and you tell me if I’m right or wrong: The price goes up (Demand curve goes up) , industries make profit, more industries join b/c of profit, supply curve goes up, price goes down, but the quantity would have overall increased?</p>
<p>revived 10 char</p>
<p>Join the conversation.</p>
<p>@happysunnyshine: what?
Also could anybody answer my question or assertion(?)?</p>
<p>Q: Is Buying Securities the same as Selling Bonds or Buying Bonds? I thought it was the opposite but not quite sure what the term securities are.</p>
<p>so which book is better for studying 5 steps or princeton</p>