Question

This results when the average total cost per unit of output increases as more output is produced

Group of answer choices

Diseconomies of scale

Economies of scale

Equal marginal principle

Increasing output substitution ratio

Answer 1

When a firm enlarges the scale of production, its average total cost decreases. This cost advantage is known as economies of scale. This cost advantage arise since the firm uses advanced technology, use specialized labour to handle specialized task, use efficient mangers and purchase raw materials on a large scale.

But after a stage the production become beyond optimum. The mangers fail to control large number of labours and huge plants. In certain time it is difficult to get raw materials and skilled labour in time. There will be lack of coordination and communication between managers and among workers. Thus after a stage the unit cost starts to rise as more output is produced. This stage is known as diseconomies of scale.

Answer: A) diseconomies of scale.