Economics · Microeconomic decision-makers. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.
Firms can be grouped by sector. Primary sector firms extract natural resources (farming, mining, fishing), secondary sector firms manufacture and construct, and tertiary sector firms provide services. Private sector firms are owned by individuals; public sector firms are owned by the government.
Firms grow by selling more themselves or by a merger, when two firms join to form one. As a firm grows, its average total cost usually falls. These savings are economies of scale. If the firm grows too large, average total cost rises again: diseconomies of scale.
So the ATC curve is U-shaped. The downward part shows economies of scale, and the upward part shows diseconomies of scale.
Saying economies of scale mean total cost falls. Total cost still rises when output rises; it is the average cost per unit that falls.
Answer: Economies of scale from 4,000 to 8,000 units (ATC falls), and diseconomies of scale from 8,000 to 12,000 units (ATC rises).
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