Question

A large firm in the newspaper industry employs 250 people, of which 32 are upper-level managers. As a result of this employee-to-manager ratio, the firm experiences 12.8% reduced productivity. At the same time, a small firm with 65 employees and 4 upper-level managers experiences 6.2% reduced productivity.

If everything else is constant, what can we say about the cost structure in this industry over this range of production?
A. The firms in this industry have economies of scale.
B. The firms in this industry have constant returns to scale.
C. The firms in this industry have diseconomies of scale.

Answer 1

C. The firms in this industry have diseconomies of scale.

Step-by-step explanation:

Diseconomies of scale arise when the business expands so its cost per unit rises at the time when the output is also increased so ultimately the cost is also increased

in this, the firm experience excessive average cost that result in lower productivity as compared before when there is an increase in output

Therefore according to the given situation, the third option is correct as it fits the given scenario