What is the link between short-run average costs and long-run average costs? Explain the association between return to scale and economies of scale and suggest the potential sources of internal and external economies of scale. Why might firms face diseconomies of scale and shutdown/break-even situations in the long run?
Amidst Covid-19 Pandemic, many businesses worldwide are facing supply chain disruptions, rising inflations, inputs/raw material supply shortages, and resultantly rising costs of production. Your company wants you to prepare an academically credible report (including references) suggesting alternate options regarding the change in the commodity output, price, and operating their business at minimum efficient scale while increasing productivity by concentrating your research on the following two essential areas:
Question 1: What is the link between short-run average costs and long-run average costs? Explain the association between return to scale and economies of scale and suggest the potential sources of internal and external economies of scale. Why might firms face diseconomies of scale and shutdown/break-even situations in the long run? (50 marks)
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