Which concept describes rising average costs as a firm grows due to inefficiencies in management and communication?

Which concept describes rising average costs as a firm grows due to inefficiencies in management and communication?

• A. economies of scale
• B. external diseconomies of scale
• C. diseconomies of scale
• D. economies of scope

Answer: (C)

Rising average costs as a firm grows due to inefficiencies in management and communication is diseconomies of scale. As a company expands, more layers of management and longer lines of communication can develop, making coordination harder and slower. That leads to duplicated efforts, slower decision-making, and higher per-unit costs even though total output is increasing. This is different from economies of scale, where average costs fall as production increases because of benefits like bulk purchasing, spreading fixed costs, and greater specialization. It’s also different from external diseconomies of scale, which are costs caused by external factors in the environment (affecting many firms in a location), not by the firm’s internal growth. Economies of scope, meanwhile, are cost advantages from producing multiple products together using shared resources.

Rising average costs as a firm grows due to inefficiencies in management and communication is diseconomies of scale. As a company expands, more layers of management and longer lines of communication can develop, making coordination harder and slower. That leads to duplicated efforts, slower decision-making, and higher per-unit costs even though total output is increasing.

This is different from economies of scale, where average costs fall as production increases because of benefits like bulk purchasing, spreading fixed costs, and greater specialization. It’s also different from external diseconomies of scale, which are costs caused by external factors in the environment (affecting many firms in a location), not by the firm’s internal growth. Economies of scope, meanwhile, are cost advantages from producing multiple products together using shared resources.