Understand increasing at an increasing/decreasing rate

TC = TFC + TVC
TFC
TVC
How to draw graph of TVC, TFC and TC
TVC graph (gradient) increases at a decreasing rate, before coming to a horizontal
point of inflexion, then increase at an increasing rate. (Increase at a decreasing
rate means it is getting cheaper and cheaper to produce, because people and
machine are used more efficiently, then comes the optimum point of production,
beyond that is increase at an increasing rate due to the fact of law of diminishing
marginal returns and inefficiency)
AFC
AVC = TVC/Q
Slope of TVC gives you AVC
AC = TC/Q
AVC and AFC falls so AC falls, however when LDMR sets in, AVC starts to rise while
AFC falls. Initially the fall in AFC is larger than the increase in AVC, so AC still
decreasing, however, soon the increase in AVC becomes larger than fall in AFC,
hence AC starts to rise. It also explains why the minimum point of AC is right of
AVC.
MC
Using slope of TC to draw the MC curve, so initially it is decreasing, then point of
minimum then increasing. MC decreases at small quantity due to specialisation
and efficiency, at minimum it is most efficient, then it starts to increase due to
LDMR.
MC, AC and AVC curve.
MC must cut AC and AVC at minimum point. (use relationship of average and
marginal to explain)
SRAC minimum point is optimum capacity, left is under, right is over.
Shift in SRAC, increase means shift in AC and not MC.
LRAC is dealing mainly with INTERNAL economies of scale. Left is EOS, right is DISEOS, so internal EOS is movement along the LRAC.
Shift of LRAC is due to EXTERNAL economies of scale (industry etc.) Shift down is
EOS, shift up is DIS-EOS.
Variants of LRAC: 1) L shaped cause of constant cost over large output. Both large
firms and small firms are able to exist side by side, incurring similar AC for
dissimilar output level. Eg. IKEA and other furniture stores. 2) Falling LRAC: Large
are able to operate at a much smaller cost than small firms. Eg. Cars 3) Rising
LRAC: Large number of small firms as EOS is little, hence no incentive to go large.
Eg. Certain types of clothing industry. Ask about Cinema
Size of firms (how to measure)
Reasons for growth: exploit EOS, control market, diversification.
Method of growths: Internal & External ( External like take-over or merger. 4 types
of merger.
Horizontal is same products, so merge to cut cost by eliminating resources that
are not used, or to dominate market share.
Vertical is different stages of product. Backward is merger with suppliers, forward
is merge with retailers. Backward to control quality, forward to control price and
service. Backward can reduce cost by being able to respond to their raw materials
volume better.

Lateral is different products but got some common grounds such as men and
women wear, might require similar skills and capital equipment, and hence
integrate to diversify.
Conglomeration is merger that is totally unrelated. Spread risk even further.
Unilever Ben & Jerry, Dove, Lipton, Walls.