Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They shift the supply curve to the right, lowering prices.
B
They increase production costs, shifting the supply curve to the left, raising prices.
C
They have no effect on production costs, keeping prices stable.
D
They decrease demand, leading to market shortages.
Understanding the Answer
Let's break down why this is correct
Answer
Diseconomies of scale occur when a company grows so large that its costs per unit start to increase instead of decrease. This usually happens because larger companies may face challenges like communication problems, slower decision-making, or inefficiencies in managing resources. As production levels increase and costs rise, the company might need to raise its prices to cover these higher costs. If prices go up, consumers may buy less, which can disturb the market equilibrium where supply meets demand. For example, if a large factory that produces toys expands its production but faces higher costs, it might increase toy prices, leading to fewer sales and a potential surplus of toys in the market.
Detailed Explanation
When a company grows too big, it can become less efficient. Other options are incorrect because Some might think that higher production means more supply and lower prices; It's a common mistake to think that costs stay the same as production increases.
Key Concepts
Diseconomies of scale
Market equilibrium
Topic
Cost Changes and Production Levels
Difficulty
medium level question
Cognitive Level
understand
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