Question 18
Theory of Costs and RevenueA firm will experience diseconomies of scale when
- A.there are difficulties in coordinating production
- B.there is shortage in labour supply
- C.the size of market is small
- D.there is an increase in the price of raw materials.
Show the answer and explanation
Answer: A (there are difficulties in coordinating production)
Explanation
When a firm grows too large, management and coordination become difficult, so average cost rises: diseconomies of scale.