Question

If a company expanded its operations by adding additional facilities and labor and as a result of this was able to reduce the cost of production on per unit basis then we can conclude that the company likely experiences

Question 2 options:

Diseconomies of scale

constant returns to scale

economies of scale

Answer 1

Soln. Diseconomies of scale is increase in per unit cost of production as a result of organizational expansion. Constant returns of scale is defined as proportionate increase in output with increase in cost of production. Economies of scale is defined as decrease in per unit cost of production by additional facilities and expansion. Based on the condition, given in the question, where cost of per unit production decrease with additional facilities and labor, this company is likely experiences economies of scale.