Skip to content

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

Which factor is most likely to cause diseconomies of scale when a firm grows very large?

Co-ordination and communication problems in management cause diseconomies of scale in a very large firm. Delays and weak control raise average cost, whereas spreading R&D cost, specialised machinery and using by-products are economies that reduce cost per unit.

  1. ASpreading of research and development cost over more units
  2. BUse of specialised high-capacity machinery
  3. CCo-ordination and communication problems in managementCorrect
  4. DAbility to use by-products profitably

Explanation

Beyond a certain size, managing the firm becomes complex: communication delays, weak control and slow decisions raise average cost, which is a managerial diseconomy. The other options are economies of scale that lower average cost: spreading of overheads, technical economies and by-product use.

Did you get it right without looking?

One question tells you little. A timed set on Cost of Production shows your real accuracy, how long you take and where you lose marks.

Practise Cost of ProductionFree diagnostic mock

More Cost of Production questions