In the following example, which firm is experiencing diseconomies of scale?
Listed in the table are the long-run total costs for three different firms.
Quantity 1 2 3 4 5
Firm A 100 100 100 100 100
Firm B 100 200 300 400 500
Firm C 100 300 600 1,000 1,500
Which firm is experiencing diseconomies of scale?
Firm A only Firm B only Firm C only Firm A and Firm B only
In the short run, a firm incurs fixed costs...
a. only if it incurs variable costs
b. only if it produces no output
c. only if it produces a positive quantity of output
d. whether it produces output or not
1 Answer | Add Yours
The answer to this is that only Firm C is experiencing diseconomies of scale.
A diseconomy of scale occurs when a firm's per unit costs increase as the firm produces more and more of a given good or service. Only Firm C fits this description. Firm A has the same total costs for all levels of production. Firm B's total costs are going up, but its per unit costs are not going up since it incurs a cost of $100 per unit at each level of output. By contrast, Firm C's per unit costs do go up. They go from $100/unit at one unit to $150/unit at two units and eventually as high as $300/unit at five units produced.
Join to answer this question
Join a community of thousands of dedicated teachers and students.Join eNotes