Changes

2.  Apple Computer probably has ______________ returns of scale for its production of iPhones.  Explain briefly.

2.  Apple Computer probably has ______________ returns of scale for its production of iPhones.  Explain briefly.

:Increasing returns of scale (also called "economics of scale"), because bigger factories can produce vastly more quantities of the product.  Doubling the factory size and number of workers may result in tripling the output, for example.  Apple can also buy the parts at a lower average cost because Apple would be buying in very large quantities if it increases its size ("scale").  (Other answers are possible)

:Many students are missing this question.  The point is this:  if Apple doubles its inputs (factory size, number of workers, etc.), does it output increase by more than a factor of 2 or less than a factor of two?

 

 

:So a correct answer would be this: increasing returns of scale (also called "economics of scale"), because bigger factories can produce vastly more quantities of the product.  Doubling the factory size and number of workers may result in tripling the output, for example.  Apple can also buy the parts at a lower average cost because Apple would be buying in very large quantities if it increases its size ("scale").  (Other answers are possible)

3.  Give an example of a "short run" cost for a firm, and give an example of a "long run" cost.  This can refer to any type of firm, from a grocery store to a baseball team to homeschooling.

3.  Give an example of a "short run" cost for a firm, and give an example of a "long run" cost.  This can refer to any type of firm, from a grocery store to a baseball team to homeschooling.