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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production

A fast-growing Pune manufacturer now finds that its unit cost is rising because of delayed decisions, poor coordination between its many departments and weaker worker morale. This is best described as:

These are internal diseconomies of scale. The firm's own growth has made management slower and coordination harder, which raises unit cost. External diseconomies would arise from industry-wide factors such as congestion or rising input prices, not from problems inside the firm.

  1. AInternal diseconomies of scale arising from managerial inefficiencyCorrect
  2. BExternal diseconomies caused by industry congestion
  3. CEconomies of scope
  4. DIncreasing returns to a variable factor

Explanation

Rising costs caused by problems inside the firm as it grows, such as coordination and control difficulties, are internal diseconomies of scale. External diseconomies stem from factors outside the firm, such as traffic or higher input prices from industry-wide congestion, which the case does not mention.

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