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Which of the following statements is correct?

Diseconomies of scale will occur when a company experiences improved efficiency from managing large enterprises as they increase in size.

Diseconomies of scale can occur because of the difficulties in managing large enterprises as they increase in size.

When economies of scale all found within the individual firm, they are considered external economies of scale.

A J-shaped long-run average cost curve occurs when there are first economies of scale over the initial range of output and diseconomies of scale as output increases.

1 answer

The correct statement is:

"Diseconomies of scale can occur because of the difficulties in managing large enterprises as they increase in size."

Here's a brief explanation of why the other statements are incorrect:

  1. Diseconomies of scale will occur when a company experiences improved efficiency from managing large enterprises as they increase in size. - This statement is incorrect because improved efficiency relates to economies of scale, not diseconomies of scale.

  2. When economies of scale are all found within the individual firm, they are considered external economies of scale. - This statement is also incorrect. Economies of scale that occur within a firm are referred to as internal economies of scale; external economies of scale arise from factors outside of the firm that benefit all firms in a particular industry.

  3. A J-shaped long-run average cost curve occurs when there are first economies of scale over the initial range of output and diseconomies of scale as output increases. - While the description is somewhat accurate concerning economies and diseconomies of scale, the term "J-shaped long-run average cost curve" is not standard; typically, an average cost curve might show a U-shape rather than a J-shape due to the initial decrease in costs followed by an increase.