Paper 3 · theory of the firm
In discussions of the costs and benefits of firm size, 'diseconomies of scale' refers to which of the following?
ARising average costs that occur once a firm expands beyond its optimal size.
BFalling average costs that continue to fall indefinitely as a firm's output increases.
CThe lowest average cost achievable at any level of output for the industry.
DThe minimum efficient scale a firm needs to reach in order to compete in the industry.
Explanation: Diseconomies of scale arise once a firm grows beyond its optimal size, as coordination, communication and management difficulties push average costs up again. This is the opposite of economies of scale (falling average costs), and distinct from productive efficiency (the lowest average cost point) or minimum efficient scale (the output level at which economies of scale are exhausted).
Derived from ZIMSEC Economics Paper 3, November 2008, Q3
