Question

The United Kingdom started regulating the size of grocery stores in the early​ 1990s, and​ today, the average size of a typical UK grocery store is roughly half the size of a typical U.S. store and​two-thirds the size of a typical French store​ (Haskel and​ Sadun, 2011).  

What implications would such a restriction on size have on a​store's average costs. Discuss in terms of economics of scale and scope.

A. Grocery store size does not affect the​ long-run average cost of production if there are economies of scale.

B. The​ long-run average cost of production for U.K. grocery stores is lower if there are no economies of scale.

C. The​ long-run average cost of production for U.K. grocery stores is lower if there are diseconomics of scale.

D. The​ long-run average cost of production for U.K. grocery stores is higher if there are diseconomics of scale.

Answer 1

C. The​ long-run average cost of production for U.K. grocery stores is lower if there are diseconomics of scale.

Step-by-step explanation:

The diseconomy of scale is called the effect that occurs in the costs of a given production. These effects generate increasing costs for the company for each unit of product that is manufactured. Specifically and technically, a diseconomy of scale occurs when a percentage increase in production is less than the percentage increase in inputs.

Since the size of the grocery stores decreases, the average costs decreases. So, The​ long-run average cost of production is lower when there are diseconomics of scale.

Hope this helps.