Economics 3.3.3 Matching
| Consequences of diseconomies of scale |
| rise in LRAC, expansion beyond optimum size and lost productive efficiency, reduced profits |
| MES is likely to be low or high relative to the size of market demand in a highly competitive industry? |
| low so there is room for many businesses to compete |
| unit cost advantages from expanding the scale of production in the long run |
| Technical economies of scale |
| gains in productivity/efficiency from scaling up long-run production |
| MES is likely to be low or high relative to the size of market demand in a natural monopoly? |
| high so industry will be highly concentrated |
| all factors of production are variable and the scale of production can change in the long run |
| networks of suppliers / customers with a low marginal cost of adding users |
| Capital-labour substitution |
| Replacing workers with machines in a bid to increase productivity and reduce the unit cost of production |
| Examples of external economies of scale |
| uni research departments, transport networks lower logistics costs, relocation of suppliers to centre of production, influx of human capital |
| Examples of markets with low MES |
| cafes, coffee shops, hotels, dry cleaners |
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