Which of the following occurs as firm size grows?
A) A decrease in the number of managers needed.
B) A decrease in transaction costs.
C) A loss of opportunity cost.
D) Administrative and bureaucratic costs rise at an increasing rate.

Question

Quizplus · Accepted Answer

As firm size grows, administrative and bureaucratic costs tend to rise at an increasing rate due to the need for more formalized systems, specialized departments, and management layers. This is known as the diseconomies of scale. A decrease in the number of managers needed (A) is unlikely as larger firms tend to have more decentralized management structures. Transaction costs (B) may initially decrease due to the volume of transactions being larger, but they may increase as the number of participants in these transactions grows. Loss of opportunity cost (C) may be experienced by smaller firms due to limited resources, but it is not a direct consequence of firm size growth.

Which of the Following Occurs as Firm Size Grows