Answered: Increasing demand from China has made…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Increasing demand from China has made New Zealand the world's biggest exporter of dairy products . Its exports of milk to China increased by 45 % in 2013. More than 300 000 hectares land in New Zealand have been transferred to dairy use from other forms of farming and forestry use since 2000. The increase in milk production has caused the average cost of its production to fall and changes in production methods have affected the price elasticity of supply of milk . Discuss whether the average cost of production always decreases when a firm increases the total output that it produces(Define economies of scale and diseconomies of scale Use of graph to explain ( if applicable ) Explain the various economies of scale e.g. purchasing economies of scale [ up to 5 ] Explain the various diseconomies of scale [ up to Brief conclusion)

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Economies of scale occur when the price per unit drops as production volume rises. In other words, economies of scale are a function of production volume and cost per unit. This occurs as a result of the beginning costs being split among a larger number of commodities even though there are more units being produced.

Diseconomies of scale are a bad thing that can harm a business. This occurs as business owners' management skills deteriorate as their enterprises expand. In other words, diseconomies of scale happen when a business starts having problems that make it less effective.

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