Question

Draw the following sketches. “Sketch” means a drawing that clearly illustrates the concept(s) related to the question, but does not require you to use a computer or to do any calculations to draw. Be sure you clearly label the axes.
(a) Sketch a production function (with one input) that implies economies of scale at low levels of output and diseconomies of scale at high levels of output. (b) What does the corresponding cost curve look like? Provide a separate sketch of the cost curve that also exhibits economies of scale for low levels of production and diseconomies of scale when a lot is produced. (c) As your third sketch, draw the unit costs curves (average cost and marginal cost) corresponding to the cost curve you sketched for (b). (d) In each of your sketches, show how the curve(s) would shift if there is a technological innovation that allows more to be produced at any given level of the input.

Answer 1

o P 1 Y eF(KL) I Laboe ITC TCS 2 (a) The graph depicts a productiain function or showing econonies of scale at love levels of output att and dis economies at high levels of output. (b) The diagram to the right to depicts the total cost curve . Cost which is concave and then convex after a certain output level. (c) The Ac and Mc curnes are & shaped in this situation. Y id A Technological innovation will shift the Tc, Mc and AC curnes downwards to TC' Mc and Ac'. » Out labore 해다 AC AC Au MC Ź output