Assignment (Economics) Example | Topics and Well Written Essays - 500 words - 2

(Economics) - Assignment Example This is mainly because of overcrowding in the factory or when addition of extra labor results in over utilization of capital resources. Diseconomies of scale are observed when a firm becomes a large scale business but loses control over its cost structure, thereby resulting in high costs per unit. Management inefficiencies, poor communication and absence of motivated workers lead to decline in productivity and subsequently in diseconomies of scale. The average cost decreases as the quantity produced increases because the contribution of fixed costs to each unit decreases. For instance, the fixed costs remain same no matter what the quantity produced is; therefore, if more units are produced the total costs become low that then result in low average total costs. Assuming both firms have similar fixed costs, then the firm XYZ will have higher cost per kilowatt hour because its total output is three times below the output of ABC. For instance, the contribution of fixed costs in average cost per kilowatt hour will be higher in case of firm XYZ due to low productivity. Explicit costs are those that are incurred during business operations i-e producing and offering goods and services. Indeed, they lead to cash outflows. Implicit costs, in contrast, are the opportunity costs of using business resources / assets that could or could not be calculated in monetary terms. Total fixed costs remains same or unaffected as output rises in the short run, assuming no change in capital resources. However, if firm expands in the long run and rents a large building for office, factory or other business purposes, then its fixed costs will also be changed. If a flawless / impeccable car is built by a single highly specialized individual then I could pay what that car-manufacturing firm or individual person demands for that car because the utility that I would get from using that vehicle would