Jones Production started business with a small scale plant. Fortunately for Smit
ID: 1250437 • Letter: J
Question
Jones Production started business with a small scale plant. Fortunately for Smith, the owner of JonesProduction, the business grew rapidly. It doubled its plant scale and its labor force every year for the nextsix years. The table above gives the total costs and the associated total products for each year.
a) Complete the table by finding the average cost for each scale.
b) Over what range of total product (output) did Jones Production experience economies of scale,constant returns to scale, and diseconomies of scale?
Jones Production started business with a small scale plant. Fortunately for Smith, the owner of JonesProduction, the business grew rapidly. It doubled its plant scale and its labor force every year for the nextsix years. The table above gives the total costs and the associated total products for each year. a) Complete the table by finding the average cost for each scale. b) Over what range of total product (output) did Jones Production experience economies of scale,constant returns to scale, and diseconomies of scale?Explanation / Answer
A)Calculate the average cost for each year by dividing the total cost by the total product. For example, in year 1, the $1000/100 units is an average cost of 10 dollars per unit. Do this for all the years and there you go. B)Economies of scale would occur when the total product increases faster than the price. Constant returns to scale would occur when they both increase at the same rate, and diseconomies of scale would be when the cost increases faster than the total product. For example between 1 and 2, the cost doubles but the total product more than doubles, which would be an economy of scale. Whereas from 5 to 6 the cost doubles, but the total output less than doubles, which would be a diseconomy of scale.
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