If a firm’s long-run average total costs increase as it increases its scale of production, the...

If a firm’s long-run average total costs increase as it increases its scale of production, the firm is experiencing

economies of scale.

constant returns to scale.

increasing returns from specialization.

diminishing marginal product.

diseconomies of scale.

Expert Solution

Answer- The correct answer is diseconomies of scale. Diseconomies of scale occurs when a company or an entity increases it’s scales in the form of output produced or size of operations or in any other form, then the firm or entity will experience increasing costs. As a result of such increasing costs the cost of production increases and the per unit cost, which is the average cost increases and the average cost curve goes upwards. This process is called diseconomies of scale.

Diseconomies of costs can occur due to mismanagement of large costs that have been incurred. Diseconomies may be caused due to a variety of reasons, some of which may be inappropriate workforce and machine ratio in the entity. This leads to inefficiency and leads to diseconomies. An example of diseconomies is when a firm or an entity hires too many workers ie., more than the required number of workers, thus it will lead to huge incurring of costs and increasing average costs.

Rahul Sunny answered 1 year ago

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