If output is increased in the long run, average production costs in the presence of internal diseconomies of scale will ________, and in the presence of external diseconomies of scale, will ________.
A) decrease; decrease
B) increase; remain constant
C) remain constant; increase
D) decrease; remain constant
E) increase; decrease

Question

Quizplus · Accepted Answer

In the presence of internal diseconomies of scale, average production costs will remain constant in the long run even if the output is increased. This is because internal diseconomies of scale arise due to an increase in the size of the firm, which leads to an increase in complexity and coordination costs. These costs cannot be reduced by increasing the output.

In the presence of external diseconomies of scale, average production costs will increase in the long run if the output is increased. External diseconomies of scale arise due to factors outside the firm, such as congestion or increased competition, which negatively impact the firm's cost structure. An increase in output will exacerbate these external factors, leading to higher costs.

If Output Is Increased in the Long Run, Average Production