Economies of scale
This material was originally created for
Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.
and is replicated here as part of the SERC Pedagogic Service.
Initial Publication Date: August 29, 2013
Summary
Working in groups of three, students analyze economies of scale for a moving business based on the size of truck used. Each student constructs an individual short-run ATC curve for a different size truck. Then the three students collaborate to determine if there are economies or diseconomies of scale and to create the long run ATC.
CollapseLearning Goals
Economies of scale; short run and long run ATC
Context for Use
Appropriate for introductory microeconomics course.
Teaching Materials
- Organize students into groups of three (see recommendations below for group formation). Distribute worksheet pages one and two to each student.
- Students number off 1, 2, 3 and then calculate TC and ATC for their size truck and draw the short run ATC curve.
- Working together, the three students share information about costs to select the best truck for each output level. This information is recorded and then used to determine if there are economies of scale or diseconomies of scale. The data are used to draw the long-run ATC curve.
Worksheet, page one (Acrobat (PDF) 47kB Aug28 12)
Worksheet, page two (Acrobat (PDF) 31kB Aug15 12)
Teaching Notes and Tips
It is best of students do not work with friends. Ask students to find partners they do not know well, or assign groups at random. If the class does not divide evenly into groups of three, ask two students to work together as "person 3" (the most difficult role.)
Students may be concerned that there are not economies of scale at output level 200 because the cost rises for the large truck. This could be a jumping off point for extensions of the activity: what if a super-large truck were available? Is this rise in the ATC because of diseconomies of scale, or simply a result of the short run increase in that size truck's ATC?
Students may be concerned that there are not economies of scale at output level 200 because the cost rises for the large truck. This could be a jumping off point for extensions of the activity: what if a super-large truck were available? Is this rise in the ATC because of diseconomies of scale, or simply a result of the short run increase in that size truck's ATC?
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Assessment
Students should be able to apply the calculations to other examples. And, students should be able to identify other examples of economies of scale (and counter examples of diseconomies of scale) in the real world.
