1.  What will costs look like when the firm can choose the best plant size for any given situation?  For every plant capacity size, there is a short- run ATC curve  All such plant capacities can be plotted. © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 1

2. Average Total Costs ATC-1 ATC-2 ATC-3 ATC-4 ATC-5 Output 7-2 © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 2

3. Long-run ATC Average Total Costs Output © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 3

4.  Economies of scale  Labour specialization  Managerial specialization  Efficient capital  Other factors  Constant returns to scale © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 4

5.  Diseconomies of scale  Control and coordination problems  Communication problems  Worker Alienation  Shirking © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 5

6.  Minimum Efficient Scale (MES):  Lowest level of output where long- run average costs are minimized  Can determine the structure of the industry © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 6

7. Output Average Total Costs Long-run ATC Economies Of Scale Constant Returns To Scale Diseconomies Of Scale q1q1 q2q2 © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 7

8. Output Average Total Costs Economies Of Scale Diseconomies Of Scale Long-run ATC © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 8

9. Output Average Total Costs Long-run ATC Economies Of Scale Diseconomies Of Scale © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 9

10.  Rising gasoline prices  Successful start-up firms  The daily newspaper  The version stamping machine  Aircraft and concrete plants © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO4 10