PG 1

1. For example, manager of have to decide the size of the plant whether is small, medium or large in size in the upcoming short period.

2. If manager wants to produce output level Q1, which size should he choose? He sure will choose the plant size at point A that gives a lower cost, with this, he can save Rm1 per unit produced.

PG 2

1. As moving from scale 1 to scale 3, average cost keep going decrease. The LRATC of a firm shows the different scales on which the firm can choose to operate in the long run.

2. Minimum efficient scale is the lowest output level at which the long-run average cost curve are minimized. This means that larger firms do not have cost advantage over small firms at this output level.

1. In long run, variable input such as capital, labor are increased to produce a particular good. If input increased by 60%, then output increased by only 20%, this is what we called as diseconomies of scale.

2. When an organization or a firm becomes too big until difficult to communicate, workers having less clear instructions. For example, a large supermarket chain may be less responsive to changing tastes and fashions than a much local retailer.

3. As the level of output rises, average costs rise as well. This situation is called diseconomies of scale.

4. Top managers are not clear what their large numbers of workers are performing. Employees may slip off for a two hour lunch occasionally. But, in a small firm the boss can control every element of the business.

5. Economies of scale, constant return of scale, diseconomies of scale cause the curve to be U-shaped. If the number of possible plant sizes is very large, the long-run average-total-cost curve will become smoother.