Question

When a firm grows larger, many additional layers of managers are sometimes added that do not actually produce any output. At the same time, the firm gains additional bargaining power over the prices it pays to its suppliers. If both of these factors have an equal effect, we would expect this firm to experience:________A. diminishing marginal returns.B. diseconomies of scale.C. constant returns to scale.D. economies of scale.

Answer 1

Answer:

C

Explanation:

C) constant returns to scale.

Returns on scale - when an increase in inputs (capital and labour) cause the same proportional increase in output.

Both the factor nullifies the effects of each other as managerial inefficiency will decrease the effect of external economies of scale in form of bargaining power so constant return to scale is expected.