If a firm enlarges its factory size and realizes higher average costs of production then:
A) it has experienced economies of scale.
B) it has experienced diseconomies of scale.
C) it has experienced constant returns to scale.
D) the long-run average cost curve slopes downward.

Question

Quizplus · Accepted Answer

When a firm enlarges its factory size but realizes higher average costs of production, it has experienced diseconomies of scale. This usually happens when the firm becomes too large to manage efficiently, leading to communication and coordination problems, increased bureaucracy, and a decrease in employee motivation and morale, all of which can increase costs.

If a Firm Enlarges Its Factory Size and Realizes Higher