Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Diseconomies of scale decrease average total cost as production increases.
B
Diseconomies of scale have no effect on average total cost.
C
Diseconomies of scale increase average total cost as production increases.
D
Diseconomies of scale only affect marginal costs, not average total cost.
Understanding the Answer
Let's break down why this is correct
Answer
Diseconomies of scale occur when a company's production costs increase as it grows larger. This means that as a business produces more goods, the average total cost per item can start to rise instead of fall. For example, if a factory expands and hires more workers, it might become harder to manage everything efficiently, leading to wasted resources or slower production. This increase in average total cost can affect supply, as higher costs might lead a business to reduce the quantity of goods it offers at certain prices. As a result, if supply decreases while demand remains the same, it can create upward pressure on prices in the market.
Detailed Explanation
Diseconomies of scale happen when a company gets too big. Other options are incorrect because Some might think that larger production always means lower costs; It's a common mistake to think that size doesn't matter for costs.
Key Concepts
Average Total Cost
Diseconomies of Scale
Supply and Demand
Topic
Calculating Average Total Cost
Difficulty
hard level question
Cognitive Level
understand
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