Question

One reason why diseconomies of scale may arise is because:

Select one:

a. layers of management may have become more difficult to control.

b. labour would be more productive in a larger sized firm.

c. machinery breaks down more frequently in larger firms.

d. the law of diminishing returns applies.

Answer 1

Diseconomies of scale occurs when rise in output raise average cost of producing goods.

Option A is incorrect because difficulty in managing management will not raise cost necessarily.

Option B is incorrect because more productive labor in large sized firm will instead reduce average cost and result in economies of scale.

Option C is correct because breaking down of machinery will raise cost of maintenance which will raise average cost.

Option D is incorrect because diminishing returns and diseconomies of scale are different concepts.