Chapter 7: Economies of Scale and Scope

Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper to incorporate DVD playing capabilities in their new version of the gaming system. Microsoft is taking advantage of

economies of scope

Average costs curves initially fall

due to declining average fixed costs

A security system company’s total production costs depend on the number of systems produced according to the following equation: Total Costs=$10,000,000+$2000*quantity produced. Given these data, which of the following is a false statement?

these are diseconomies of scale

According to the law of diminishing marginal returns, marginal returns

diminish eventually

Once marginal cost rises above the average cost,

average costs will increase