Question

Give an arithmetical example to illustrate diseconomies of scale.

Answer 1

Diseconomies of scale are when production output increases with rising marginal costs, which results in reduced profitability. Instead of production costs declining as more units are produced (which is the case with normal economies of scale), the opposite happens, and costs become higher with the production of each additional unit.For example, if a product is made up of two components, gadget A and gadget B, diseconomies of scale might occur if gadget B is produced at a slower rate than gadget A. This forces the company to slow the production of gadget A, increasing its per-unit cost.