Question

12. Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing a) economies of scale. b) constant returns to scale. c) diseconomies of scale. d) specialization.

Answer 1

The correct answer is letter "C": diseconomies of scale.

Step-by-step explanation:

Diseconomies of Scale is the stage at which a company no longer experiences cost reductions per unit of production. Instead, cost per unit continues to grow after this level. Several factors contribute to diseconomies of scale such as multiple steps of a manufacturing system that at a certain point creates bottleneck or shipping costs as the result of international trade.

Answer 2

c) Diseconomies of scale.

Step-by-step explanation:

Diseconomies of scale are the increasing costs that a firm experiences when it produces more output. It is the opposite to economices of scale (hence the name).

In this case the firm is experiencing diseconomies of scale because its costs go up as it produces from 2,000 to 4,000 airplanes. This may result due to communication costs (for example, if the firm has many separate plants), duplication of efforts, diminishing marginal productivity of the factors or production, or even office politics.