Joffe [Michael Joffe, professor of economics at Imperial College, London] said university economics department were continuing to teach concepts that had been disproved. In one example he said the idea that companies suffer "dis-economies of scale" when they increase production beyond certain capacity was true in only a small number of firms.What does this imply? Is Joffe really saying that he thinks all firms are natural monopolies? I think that is what Joffe's comment leads to. If firm's average cost curves are not U-shaped then I assume they are downward sloping over the relevant range and this implies that firms are natural monopolies. Now this may be true for some firms but I can't see it as true in general. Is your local dairy really a natural monopoly?
The U-shaped curve shows that unit costs are high when production begins and become cheaper as economies of scale allow a company to spread costs over more units. Units become more expensive to produce after a factory reaches capacity.
Joffe said: "We ought to stop teaching the U shape as the typical relationship between costs and scale, for the simple reason that it is false."
Monday, 25 November 2013
I don't follow this argument
This article in the Guardian states,