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Economies of Scale Visualizer

Run the Economies of Scale Visualizer MicroSim Fullscreen
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About This MicroSim

This MicroSim demonstrates how average cost per unit changes as a firm scales up production. The U-shaped long-run average total cost curve shows that costs initially fall as production increases (economies of scale) but eventually rise when a firm grows too large (diseconomies of scale). The simulation compares three factory sizes -- Cottage, Workshop, and Factory -- so students can see real cost differences at different production scales.

How to Use

  1. Adjust the Quantity slider at the bottom to change the production level from 10 to 1,000 units.
  2. Watch the red dot move along the U-shaped average total cost curve, with dotted lines showing the exact cost per unit and quantity.
  3. Compare the three factory panels below the graph: each shows the factory name, number of units, workers, and cost per unit at that scale.
  4. Notice the colored regions on the graph: the green area represents economies of scale (costs falling) and the red area represents diseconomies of scale (costs rising).

Iframe Embed Code

You can add this MicroSim to any web page by adding this to your HTML:

<iframe src="https://dmccreary.github.io/economics-course/sims/economies-of-scale/main.html"
        height="452px"
        width="100%"
        scrolling="no"></iframe>

Lesson Plan

Grade Level

9-12 (High School Economics)

Duration

10-15 minutes

Prerequisites

  • Understanding of average cost (total cost divided by quantity)
  • Basic knowledge of fixed costs and variable costs

Activities

  1. Exploration (5 min): Move the slider across the full range. Find the quantity where cost per unit is lowest. Record the cost per unit at 50, 400, and 900 units. Why does the curve have a U shape?
  2. Guided Practice (5 min): Compare the three factory sizes. Calculate how much total cost savings a Factory achieves over a Cottage for producing the same number of units. Why can larger firms charge lower prices?
  3. Assessment (5 min): A company currently produces 200 units. A competitor produces 600 units. Using the simulation, explain which firm has lower costs and why. Then explain why a firm producing 900 units might have higher costs than the 600-unit firm.

Assessment

  • Students can define economies of scale and diseconomies of scale
  • Students can identify the minimum efficient scale on the ATC curve
  • Students can explain real-world reasons why costs first decrease then increase with firm size

References

  1. Economies of scale - Wikipedia - Comprehensive overview of why average costs decrease as production increases.
  2. Diseconomies of scale - Wikipedia - Explanation of why firms can become too large and face rising average costs.
  3. Long-Run Average Total Cost - Khan Academy - Video lesson on the long-run ATC curve and economies of scale.