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Is this statement true or false: the reason that diseconomies of scale (decreasing returns to scale)...

Is this statement true or false: the reason that diseconomies of scale (decreasing returns to scale) exist in the long run is because at some point when the firm continues to increase it’s scale of operation, there are no efficiency gains on the production side? Why?

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Answer #1

This statement is true. Diseconomies of scale exist in the long-run when diminising returns set in and it is no longer possible to reduce costs, and further expansion of output increases average cost of production. This usually happens when there are either technical reasons why average costs rise by increasing production; in addition managerial inefficiencies may set in. Therefore, lack of efficiency gains on the production side lead to diseconomies of scale.

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