Sample Essay

Economies of scale occur for a limited period of time. According to the economies of scale cost curve depicted below the company faces increasing costs after the point Qm. This is because of the expansion in production which does eventually give rise to the fixed costs for the production as well after a period of time.

The decreasing returns form the increase in the fixed costs depict diseconomies of scale which essentially occur when the per unit cost of production starts rising. The shaded area in the diagram shows the region where the firm is undergoing economies of scale while the non shaded region after the point Qm depicts the firm facing diseconomies of scale. The point Qm depict the lowest point of costs being incurred by the firm.

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