ASSIGNMENT | Unit 4 Discussion Costs and Economies of Scale

You have learned a good deal about production costs and profit in this unit. You have also learned that accountants and economists calculate profit differently. Moreover, many suppliers experience economies of scale as output expands, which implies that long-run average total costs are falling. At very high levels of production, however, many firms are likely to experience diseconomies of scale.

Discussion Checklist:

Discuss the difference between how accountants and economists calculate profit giving example of costs each might use in this calculation.
Why do firms experience diseconomies of scale as they increase production volume?
How might firms “avoid” experiencing diseconomies of scale?

SAMPLE SOLUTION

Accountants calculate profit as the difference between the total monetary revenues and the total monetary costs. Monetary costs may comprise explicit costs such as rent, wages, and material costs while monetary revenue is the amount the company makes upon making a sale (Goedhart et al., 2015).
Accounting profit and economic profit may differ because economic profit may include opportunity costs…