ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A firm doubles all of its inputs and finds that its output rises by less than double, so that average cost per unit rises. Which term describes this situation?
This is diseconomies of scale. When a firm increases all inputs by a given proportion but output grows by a smaller proportion, the average cost per unit rises, which is the opposite of the cost savings seen with economies of scale.
- AEconomies of scale
- BDiseconomies of scaleCorrect
- CEconomies of scope
- DDiminishing marginal utility
Explanation
When all inputs are increased in the same proportion and output rises by a smaller proportion, unit costs rise. This is diseconomies of scale. Economies of scale would show unit costs falling as output rises.
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