Question:
A firm facing diseconomies of scale will experience
(1) a rising marginal cost in the short-run.
(2) a rising long-run average total cost as output increases.
(3) a decreasing average total cost in the long-run.
(4) an increase in output greater than the increase in inputs.
(5) a constant long-run average total cost regardless of output level.
Correct Answer:
(2)
Answer Explanation:
Economies and diseconomies of scale are strictly long-run concepts. Diseconomies of scale occur when a firm expands its scale of production so much that administrative inefficiencies and communication breakdowns cause its Long-Run Average Total Cost (LRATC) to rise as output increases.
Topic: Costs of Production Year: 2024
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