Desirability give firms view, consumers view, and societys view. See remedial exercise 2.

Do SR notes on top

Def: LR: time period where all factors of production can be varied, except level of technology.

Long run average cost curve shows how average cost varies with output. (u shaped with axis: cost
and quantity. Label MES and do a doted divider and label iEOS and IDEOS). As output rises, at first
average costs fall because of large scale pdn advantages. The rising part of the lrac curve reflects
average costs increasing due to internal diseconomies of scale (happens when firm expands beyond
optimum size).

Minimum efficient scale: Achieved when long run average cost is minimum (lowest point on lrac). It
is the optimal plant size or output level beyond which no additional economies of scale can be
achieved.

Def: economies of scale are cost savings due to increase firms expansion or industry expansion).

Def: iEOS are the savings in as a result of firms expansion, and have been created by the firms own
policies and actions.

Types of iEOS

Technical Economies

- Specialisation and division of labour

As the firm increases in size, it becomes possible to employ the principle of division of labour
to an increasing extent. Thus, the larger the scale of production is, the greater the scope of
specialization of both labour and machinery. By performing the same actions repeatedly, a
worker becomes very skilled and can perform with speed and dexterity. If production is
broken down into many different stages, machine can be designed specifically for each
stage.

Example: This process is clearly seen in a modern car assembly plant, where many of the
different stages in assembly are completed by computer-controlled machines. Hence, such
mass production techniques have helped to cut down unit costs of production.

Counter (for essays where you are asked the advantages of being a large firm. Even when
you just happen to mention these iEOS, you can mention the counter to give you
evaluation marks etc): Monotonous work. Might lead to mistakes on the part of worker and
lower productivity so AC increases.

- Indivisibility of Machinery (large scale machinery)