CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which of the following is a diseconomy of scale that typically appears when a firm grows very large?
Slower communication and weaker control across many management levels is a diseconomy of scale. As a firm becomes very large, coordination and supervision become harder and decisions are delayed, raising average cost. Bulk discounts, specialised managers and cheaper finance are economies of scale, not diseconomies.
- ADiscounts on bulk purchase of raw materials
- BAbility to employ specialised managers
- CLower cost of borrowing due to high creditworthiness
- DSlower communication and weaker control across many management levelsCorrect
Explanation
Diseconomies arise when size causes inefficiency, such as long chains of command, slow communication and difficulty of coordination and supervision. The other options are benefits of size: purchasing, managerial and financial economies.
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