Final answer:
An increase in the size of a firm's operation leads to an increase in average total cost when diseconomies of scale are present, which happens when the firm becomes too large and management complexity leads to inefficiencies.
Step-by-step explanation:
When a firm experiences diseconomies of scale, an increase in the size of its operation will lead to an increase in average total cost. Diseconomies of scale occur when the long-run average cost of producing output increases as total output increases. This is often due to management becoming excessively complex, leading to communication issues and disruptions in the flow of work and materials as more layers of management are added. Existing examples of inefficiency due to this can be seen in some planned economies where overly large factories were protected by government economic planners, allowing them to operate without competitive pressures even though the production costs were very high.