ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A manufacturer's output has risen so far that it now needs extra layers of management, communication has slowed, and average cost per unit has started to rise. What is this called?
This is diseconomies of scale. Beyond a certain size, extra management layers, slow communication and weaker control raise the average cost per unit. Economies of scope relate to product range savings and diminishing marginal utility relates to consumer satisfaction, so neither fits.
- ADiseconomies of scaleCorrect
- BEconomies of scope
- CDiminishing marginal utility
Explanation
When a firm grows beyond its optimal size, coordination, communication and control problems push the average cost per unit up. These are diseconomies of scale. Economies of scope concern savings from producing a range of products, and diminishing marginal utility concerns consumer satisfaction.
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