Economies of Scale: Short-Run and Long-Run Average Costs

Chapter 31 of a business economics text on economies of scale, defined as the reduction in average costs of production that occurs as a business increases its scale of production, and the source of the competitive advantage larger firms hold over smaller ones. Sets out the difference between the short run, where costs such as a twelve-month rent contract are fixed, and the long run where all costs become variable, and shows the long-run average cost curve as a envelope of successive short-run curves as the business grows. Continues into the economies that can be measured financially, such as savings on raw materials and a loan renegotiated at a lower rate, and closes on the diseconomies of scale.