Diseconomies of scale occur when
A) long-run average costs rise as a firm increases its output.
B) long-run average costs fall as a firm expands its plant size.
C) short-run average costs rise as a firm expands its plant size.
D) long-run labour costs rise as a firm increases its output.

Question

Quizplus · Accepted Answer

Diseconomies of scale refer to a situation where long-run average costs increase as a firm increases its output beyond a certain level. This could happen due to reasons like the complexity of the production process, difficulties in coordination, or higher transportation costs. Therefore, option A is the correct answer. Options B and D describe economies of scale, where long-run average costs decrease as a firm expands its plant size or increases its output due to advantages like cost-sharing and specialization. Option C refers to short-run average costs, which may initially decrease, but eventually reach a minimum and then start increasing as a firm expands its plant size beyond a certain point, indicating the law of diminishing returns.

Diseconomies of Scale Occur When