Question

(part a)

Is the following statement TRUE or FALSE? Explain your reasoning.

"If the average total costs for producing a good rise with the quantity produced, there would be diseconomies of scale."

(part b)

Think of General Motors (car manufacturer), UPS (delivery service), and Nike (sports apparel manufacturer). Which of these three companies do you think would be most likely to have economies of scope? Explain your answer.  

Answer 1

Solution A

Answer is True. Because rise in production when causes rise in average total costs its termed to have diseconomies of scale while rise in production when lead to lower costs its called economies of scale.

Solution B

For companies like Nike, a wider variety of production will lower its average total costs and enhance scalability and diversification and thus have economies of scope.

However for UPS diversification is less likely, and for General Motors diversification will incur higher production costs amd hence both options are neglected.

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