ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Long-run average cost curve of a firm illustrates how the cost per unit changes with output. Economies of scale means that production gets cheaper when more units are produced (up to a certain point). The savings come from spreading the cost of production over a larger number of units.

Detailed explanation-2: -There are several reasons why economies of scale give rise to lower per-unit costs. First, specialization of labor and more integrated technology boost production volumes. Second, lower per-unit costs can come from bulk orders from suppliers, larger advertising buys, or lower costs of capital.

Detailed explanation-3: -In the long run, firms can choose their production technology, so all costs become variable costs. Economies of scale refers to a situation where the average cost decreases as the level of output increases.

Detailed explanation-4: -Economies of scale exist when long run average total cost decreases as output increases, diseconomies of scale occur when long run average total cost increases as output increases, and constant returns to scale occur when costs do not change as output increases.

Detailed explanation-5: -Effects of Economies of Scale on Production Costs It reduces the per-unit fixed cost. As a result of increased production, the fixed cost gets spread over more output than before. It reduces per-unit variable costs. This occurs as the expanded scale of production increases the efficiency of the production process.