Economies and Diseconomies of Scale: A Comprehensive Guide for Microeconomics Students

Question 1

Which of the following is **not** a determinant of internal economies of scale?

Accepted Answer

Extensive advertising campaigns

Answer

Specialization of labor

Answer

Bulk purchasing discounts

Answer

Improved coordination and communication

Question 2

A firm is said to be facing external diseconomies of scale when:

Accepted Answer

Increased demand for its products leads to higher input prices.

Answer

Competition intensifies, making product differentiation more challenging.

Answer

It loses market share to larger rivals.

Answer

Transportation costs rise due to increased output.

Question 3

A firm with decreasing average costs as output increases is experiencing:

Accepted Answer

Economies of specialization

Answer

Diseconomies of scale

Answer

Constant returns to scale

Answer

Economies of agglomeration

Question 4

A firm that incurs increasing average costs as output increases is experiencing:

Accepted Answer

Internal diseconomies of scale

Answer

Economies of scale

Answer

External diseconomies of scale

Answer

Diseconomies of specialization

Question 5

Which of the following is a result of economies of scale?

Accepted Answer

Lower production costs

Answer

Higher consumer prices

Answer

Increased consumer welfare

Answer

Reduced efficiency

Question 6

A firm that has constant average costs as output increases is operating at its:

Accepted Answer

Minimum efficient scale

Answer

Maximum efficient scale

Answer

Diseconomies of scale

Answer

Economies of scale

Question 7

A firm that encounters both economies and diseconomies of scale at varying output levels operates on a:

Accepted Answer

U-shaped cost curve

Answer

V-shaped cost curve

Answer

L-shaped cost curve

Answer

S-shaped cost curve

Question 8

Which of the following is **not** a reason for internal economies of scale?

Accepted Answer

Increased advertising expenditure

Answer

Specialization of labor

Answer

Sharing of fixed costs

Answer

Technology sharing

Question 9

Can economies and diseconomies of scale influence the number of businesses operating in an industry?

Accepted Answer

Yes, economies and diseconomies of scale can affect the number of businesses in an industry.

Answer

No, economies and diseconomies of scale only affect the costs and efficiency of individual businesses, not the number of businesses in an industry.

Question 10

What is a defining characteristic of diseconomies of scale?

Accepted Answer

Inefficient production processes due to excessive firm size

Answer

Falling labor costs as production increases

Answer

Unvarying fixed costs with increased production

Question 11

Which industry is more likely to exhibit economies of scale?

Accepted Answer

Automobile manufacturing

Answer

Retail trade

Answer

Healthcare services

Answer

Educational services

Question 12

The minimum efficient scale (MES) is defined as the:

Accepted Answer

Output level where average total costs are minimized

Answer

Output level where diseconomies of scale begin

Answer

Output level where economies of scale end

Question 13

Which of the following is a potential benefit of economies of scale for consumers?

Accepted Answer

Lower prices due to reduced production costs

Answer

Enhanced customer service

Answer

Higher quality of products

Answer

Increased variety of products

Question 14

A firm experiencing diseconomies of scale may consider:

Accepted Answer

Outsourcing certain activities to reduce production costs

Answer

Expanding production without considering cost implications

Answer

Investing heavily in new technologies

Answer

Cutting back on marketing expenses

Question 15

Which of the following is a potential long-term consequence of economies of scale?

Accepted Answer

Increased market concentration due to mergers and acquisitions

Answer

Reduced innovation and market stagnation

Answer

Improved environmental outcomes

Answer

Increased consumer spending

Question 16

Diseconomies of scale can lead to:

Accepted Answer

Increased bureaucracy and delayed decision-making

Answer

Improved communication and coordination

Answer

Higher levels of productivity

Answer

Increased employee motivation

Question 17

Which of the following is NOT an internal factor that contributes to economies of scale?

Accepted Answer

Increased market demand

Answer

Increased production efficiency

Answer

Specialization of labor

Answer

Bulk purchasing discounts

Question 18

Diseconomies of scale occur when:

Accepted Answer

Average costs of production increase as output increases

Answer

Marginal costs of production decrease as output increases

Answer

Average costs of production decrease as output increases

Question 19

Which of the following is an example of an external diseconomy of scale?

Accepted Answer

Increased traffic congestion due to a large factory

Answer

Increased specialization of labor

Answer

Reduced bulk purchasing discounts

Question 20

Which of the following industries is most likely to experience significant economies of scale?

Accepted Answer

Automobile manufacturing

Answer

Professional services

Answer

Agriculture

Answer

Handmade crafts

Question 21

A firm is experiencing diseconomies of scale when:

Accepted Answer

Its average total cost increases as its output increases

Answer

Its marginal cost is greater than its average total cost

Answer

Its average total cost decreases as its output increases

Question 22

Which of the following is NOT a potential cause of diseconomies of scale?

Accepted Answer

Increased efficiency due to specialization

Answer

Limited resources

Answer

Increased coordination costs

Answer

Decreasing returns to scale

Question 23

Economies of scale are most likely to occur when:

Accepted Answer

Fixed costs are high and variable costs are low

Answer

Both fixed and variable costs are low

Answer

Fixed costs are low and variable costs are high

Answer

Both fixed and variable costs are high

Question 24

Which of the following industries typically exhibits both economies and diseconomies of scale?

Accepted Answer

Utilities (e.g., water, electricity)

Answer

Retail trade

Answer

Consulting services

Question 25

A potential strategy to mitigate diseconomies of scale is:

Accepted Answer

Outsourcing non-core functions

Answer

Reducing specialization of labor

Answer

Expanding into new markets

Answer

Increasing vertical integration

Question 26

Which of the following is NOT an internal factor that affects economies of scale?

Accepted Answer

Government policies

Answer

Division of labor

Answer

Management techniques

Answer

Technological advancements

Question 27

At the point of minimum average cost, a firm is experiencing:

Accepted Answer

Optimal scale of production

Answer

Economies of scale only

Answer

Diseconomies of scale only

Question 28

Which of the following is an example of an external diseconomy of scale?

Accepted Answer

Traffic congestion in the surrounding area

Answer

Lower per-unit transportation costs

Answer

Higher wages demanded by skilled workers

Answer

Greater access to bulk discounts

Question 29

In the presence of economies of scale, a firm's average total cost:

Accepted Answer

Decreases

Answer

Remains constant

Answer

Can either increase or decrease

Answer

Increases

Question 30

Which of the following is a determinant of optimal firm size?

Accepted Answer

Both internal and external economies and diseconomies of scale

Answer

External economies of scale only

Answer

Neither internal nor external economies of scale

Answer

Internal diseconomies of scale only

Question 31

Economies of scale can lead to lower prices for consumers because:

Accepted Answer

Firms can produce goods and services at a lower cost

Answer

Firms can charge higher prices for products

Answer

Consumers have more bargaining power

Answer

Government intervention lowers prices

Question 32

Diseconomies of scale can arise when:

Accepted Answer

Coordination and communication become challenging

Answer

Employees become more specialized

Answer

Firms can negotiate better deals with suppliers

Answer

Firms have access to more capital

Question 33

Which of the following is a potential consequence of diseconomies of scale?

Accepted Answer

Reduced efficiency and higher unit costs

Answer

Increased market share

Answer

Improved product quality

Answer

Enhanced innovation

Question 34

A bicycle factory increases its daily production from 100 to 200 bicycles. This results in a lower average cost per bicycle. What does this scenario best illustrate?

Accepted Answer

Economies of scale

Answer

Diseconomies of scale

Answer

Constant returns to scale

Answer

Decreasing marginal utility

Question 35

Which of the following is NOT an internal factor that can lead to lower production costs as a company grows?

Accepted Answer

Government subsidies

Answer

Buying raw materials in bulk

Answer

Investing in advanced technology

Answer

Specializing workers in specific tasks

Question 36

A large supermarket chain has lower transportation costs per item because of its many stores. This is an example of:

Accepted Answer

External economies of scale

Answer

Diseconomies of scale

Answer

Internal economies of scale

Answer

Network effects

Question 37

A bakery expands its operations but finds that its productivity drops and its average costs rise. This is known as:

Accepted Answer

Diseconomies of scale

Answer

Constant returns to scale

Answer

Economies of scale

Answer

Diminishing marginal returns

Question 38

Which of these is NOT a typical reason why a company might experience diseconomies of scale as it grows larger?

Accepted Answer

Increased efficiency in production processes

Answer

Problems managing a larger workforce

Answer

More bureaucracy and communication issues

Answer

Overburdened resources and infrastructure

Question 39

A small, local bakery thrives because it offers personalized service and high-quality ingredients. This highlights the possible advantages of:

Accepted Answer

Small-scale production

Answer

Diseconomies of scale

Answer

Large-scale production

Answer

Economies of scale

Question 40

A company sees its average cost per unit decrease as it produces more. This suggests that the company is:

Accepted Answer

Benefitting from economies of scale

Answer

Reducing its fixed costs

Answer

Operating at a constant return to scale

Answer

Experiencing diseconomies of scale

Question 41

A large, international company struggles to communicate and coordinate effectively across its many locations. This situation illustrates:

Accepted Answer

Diseconomies of scale

Answer

External economies of scale

Answer

Economies of scale

Answer

Increasing marginal returns

Question 42

When a firm is thinking about expanding production, what should they carefully consider?

Accepted Answer

The potential benefits and drawbacks of economies and diseconomies of scale

Answer

The need to achieve the lowest possible average cost per unit

Answer

The availability of easily accessible resources

Question 43

Which industry is MOST likely to benefit significantly from economies of scale?

Accepted Answer

Automobile manufacturing

Answer

Hairdressing

Answer

Local bakery

Question 44

A car manufacturer increases its production volume from 1000 cars per month to 2000 cars per month, resulting in a decrease in cost per car from £10,000 to £8,000. This is an example of what economic concept?

Accepted Answer

Economies of scale

Answer

Constant returns to scale

Answer

Diseconomies of scale

Answer

Increasing marginal costs

Question 45

Which of the following is NOT typically considered an internal economy of scale?

Accepted Answer

Government subsidies for research and development

Answer

Investment in advanced technology

Answer

Specialization of labor

Answer

Bulk buying of raw materials

Question 46

A large supermarket chain benefits from lower transportation costs due to its extensive network of distribution centers. This is an example of what type of economy of scale?

Accepted Answer

External economies of scale

Answer

Diseconomies of scale

Answer

Constant returns to scale

Answer

Internal economies of scale

Question 47

A company experiences a decrease in productivity as it expands its operations. This is accompanied by difficulties in communication and coordination among its employees. Which concept best describes this situation?

Accepted Answer

Diseconomies of scale

Answer

Constant returns to scale

Answer

Economies of scale

Answer

Increasing marginal returns

Question 48

Smaller businesses often have an advantage over large corporations in terms of what factor?

Accepted Answer

Greater flexibility and responsiveness to market changes

Answer

Easier access to capital

Answer

Lower production costs per unit

Question 49

A firm is considered to be operating at its Minimum Efficient Scale (MES) when it achieves what?

Accepted Answer

The lowest possible average cost of production

Answer

The largest market share

Answer

The maximum possible output

Question 50

Which of the following industries is most likely to experience economies of scale due to high fixed costs and the ability to spread them over a large output?

Accepted Answer

Automobile manufacturing

Answer

Hairdressing salon

Answer

Freelance writing

Answer

Local bakery

Question 51

A firm experiencing diseconomies of scale is likely to see what change in its average costs?

Accepted Answer

Increasing average costs of production

Answer

Increased profitability

Answer

Decreasing average costs of production

Answer

Constant average costs of production

Question 52

A firm operating at a large scale may face challenges in maintaining quality control due to what factor?

Accepted Answer

Difficulties in monitoring and managing a larger workforce

Answer

Reduced access to specialized labor

Answer

Increased cost of raw materials