CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which of the following is an example of an internal diseconomy of scale rather than an external one?
Slow communication across many management layers causing costly errors is an internal diseconomy of scale because it arises from the firm's own size. Rising rents, congestion and regional labour shortages come from industry-wide growth and are external diseconomies.
- ARising land rent in an industrial area as many firms crowd in
- BTraffic congestion around an industrial estate raising transport time for all firms
- CA large firm's slow communication across many layers of management leading to costly errorsCorrect
- DA shortage of skilled labour in the region as the industry grows
Explanation
Internal diseconomies arise within the firm because of its own size, such as long communication chains and weak coordination. The other options arise from growth of the whole industry or area and affect all firms, so they are external diseconomies.
Did you get it right without looking?
One question tells you little. A timed set on Theory of Production shows your real accuracy, how long you take and where you lose marks.
More Theory of Production questions
- The Law of Variable Proportions (Law of Diminishing Returns) in the short run operates on the assumption that:
- A firm's long-run average cost (LRAC) per unit at different output levels is: 1,000 units Rs 50; 2,000 units Rs 40; 3,000 units Rs 40; 4,000…
- On a farm in Punjab, the total product of labour on a fixed plot is maximum at 6 workers. What is the marginal product of the 6th worker and…
- If the prices of both labour and capital double while the firm's total outlay stays unchanged, the isocost line will:
- A Ludhiana hosiery unit raises all inputs by 20% and its output rises by 12%. Which statement is correct?
- In the Law of Variable Proportions, a firm increases one variable input (labour) while keeping all other inputs (land, machinery) fixed. Whi…