Question

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________. A Output will double B Output will increase, but less than double C Output will remain the same D Output will decrease

Answer 1

Answer:

Under diseconomies of scale,firms experience decreasing returns to scale.Hence,the answer would be option B. or output will increase but less than double.

Explanation:

• Diseconomies of scale is characterized as a situation in production where any firm experiences increase in the average cost of production as the output or production level expands.
• Diseconomies of scale can occur when the productive resources of the factors/inputs of production looses their productive efficiency in the production process and is not able to generate proportionate or higher production level or output.
• As a result,the output or production level obtained by employing a certain level of factor inputs or productive resources is usually less than the amount or proportion of those factor inputs or resources.
• In other words,due to lower productive capacity or efficiency the productive resources or factors inputs are not able to manufacture or generate proportionate or higher levels of output and hence,the firms end up investing more on these resources or inputs but do not obtain proportionately expected output level.