Question

Over the range of output where a firm experiences diseconomies of scale:

a) average variable costs are falling.
b) marginal costs are falling.
c) long-run average costs are rising.
d) average total costs are falling.

Answer 1

The correct response to the range of output experiencing diseconomies of scale is that long-run average costs are rising, which happens when management complexities cause inefficiencies as firms grow too large.

Step-by-step explanation:

Over the range of output where a firm experiences diseconomies of scale, the correct response is that long-run average costs are rising. This situation occurs when a firm grows so large that coordination and management become increasingly challenging, resulting in higher average costs. As factories or firms become too large, communication barriers and management complexities can disrupt the flow of work and materials, ultimately leading to inefficiencies and increasing costs. Therefore, it is in the portion of the long-run average cost curve from output level Q4 to Q5 that we observe these diseconomies of scale, where as output and scale increase, so do the average costs.