Final answer:
The difference lies in scope: plant level focuses on production efficiency within a single facility, while firm level assesses business-wide cost structure and market position. Economies of scale result in lower costs with increased production up to a point, after which diseconomies can arise.
Step-by-step explanation:
In analyzing scale economics and diseconomics, the difference between the plant level and the firm level can be thought of in terms of operational focus and scope. Option 2 is the most accurate: Plant level focuses on cost optimization within a production facility, optimizing production efficiency and trying to get the lowest average costs per unit of output. This pertains to how well resources are used within the plant, such as machinery and labor, to minimize costs. The firm level, on the other hand, assesses the entire business's cost structure and its market position, including factors like administration, marketing, research and development, and logistics that span beyond the production floor.
Understanding economies of scale is essential in this context. When a firm experiences economies of scale, the average cost per unit decreases as the quantity of output increases. This is applicable up to a certain point, identified in the example as point L. Beyond point L, a firm may experience diseconomies of scale, where increased production does not correspond to a decrease in average costs, due to complexities and inefficiencies that creep in with excessive scaling.