Economics Department

Long run costs

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1) Suppose a firm is considering increasing production from its current output level. Consider why such an increase might result in an increase in SR average cost but a decrease in LR average costs.                                                                              

(20 marks)

2) If Economies of scale are so significant, why are there so many small firms?

                                                                                                                        (20 marks)

3) Explain what is meant by economies of scale, and consider how they can arise in certain situations.                                                                                        

(20 marks)

4) The majority of mergers result in a reduction in the overall profitability of the merged companies. What factors account for the enduring popularity of mergers in the noughties?                                                                                                      

(20 marks)

5) An increase in the scale of production is more likely to create diseconomies of scale than economies. Discuss.                                                                       

(20 marks)