figure illustrates the average costs of production of semiconductors.

The curve illustrates economies of scale by showing that as the scale increases—that is, as production

at this particular factory goes up—the average cost of production declines. The economies of scale

exist up to an output of 40,000 semiconductors; at higher outputs, the average cost of production does

not seem to decline any further.

b. At any quantity demanded above 40,000, this economy can take full advantage of economies of scale;

that is, it can produce at the lowest cost per unit. Indeed, if the quantity demanded was quite high, like

500,000, then there could be a number of different factories all taking full advantage of economies of

scale and competing with each other. If the quantity demanded falls below 40,000, then the economy

by itself, without foreign trade, cannot take full advantage of economies of scale.
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