Diseconomies of scale can be caused by:
A)bureaucratic inefficiencies
B)increasing advertising and promotional costs.
C)the law of diminishing returns
D)all of the above
6. Diseconomies of scale can be caused by
a. the law of diminishing returns.
b. bureaucratic inefficiencies.
c. increasing advertising and promotional costs.
d. all of the above.
To determine the answer, we need to understand what diseconomies of scale are and what factors can cause them.
Diseconomies of scale refer to the situation in which a company's costs per unit increase as it grows larger and expands its production. This is in contrast to economies of scale, which occur when a company's costs per unit decrease as it grows larger.
Now, let's consider the options provided:
A) Bureaucratic inefficiencies: Bureaucratic inefficiencies can contribute to diseconomies of scale. As a company grows larger, it may become more difficult to manage and coordinate operations efficiently. Decision-making processes may become slower, communication might suffer, and layers of bureaucracy can lead to increased administrative costs. These inefficiencies can increase the overall costs per unit.
B) Increasing advertising and promotional costs: As a company expands, it may need to spend more on advertising and promotional activities to maintain or increase its market share. Higher advertising and promotional costs can eat into the economies of scale that the company might have gained in other areas, leading to diseconomies of scale.
C) The law of diminishing returns: The law of diminishing returns states that adding more units of a variable input to a fixed input at some point will yield less additional output. In the context of scale, this means that as a company expands its production beyond a certain point, the additional output gained per additional unit of input (e.g., labor or capital) starts to diminish. This can result in an increase in costs per unit, thereby causing diseconomies of scale.
Having considered each option, we can now conclude that the correct answer is D) all of the above. Bureaucratic inefficiencies, increasing advertising and promotional costs, as well as the law of diminishing returns, can all individually or together contribute to diseconomies of scale.