Part II. Consider the values in the following table for the Winsome Widget Facto
ID: 1183619 • Letter: P
Question
Part II. Consider the values in the following table for the Winsome Widget Factory.
Winsome Widget Factory
Output
Long Run Average Total Cost
0
------------------
5
170
10
110
15
85
20
83
25
78
30
75
35
75
40
80
45
82
50
97
a. Over what output levels do economics of scale occur? Explain.
b. Over what output levels do constant returns to scale occur? Explain.
c. Over what output levels do diseconomies of scale occur? Explain.
Winsome Widget Factory
Output
Long Run Average Total Cost
0
------------------
5
170
10
110
15
85
20
83
25
78
30
75
35
75
40
80
45
82
50
97
Explanation / Answer
To answer this question, you first need to define economies of scale, constant returns to scale, and diseconomies of scale. These are below for reference. The next step is to calculate the cost per widget by dividing the long run average total cost by the output quantity (see table below, with first two rows demonstrated) Output Cost Cost per Object 5 170 34 10 110 11 15 85 ? 20 83 ? 25 78 ? 30 75 ? 35 75 ? 40 80 ? 45 82 ? 50 97 ? In the first two rows, you can see that as the number of objects increases from 5-10, the cost per object decreases from 34 to 11. This shows economies of scale. Keep following these steps to answer the rest of the question! Definitons: economies of scale: as you increase the number of objects you make, the cost per object decreases constant returns to scale: as you increase the number of objects you make, the cost per object stays the same. diseconomies of scale: as you increase the number of objects you make, the cost per object increases