Understanding Diseconomies of Scale in Market Structures

The video tutorial explains diseconomies of scale, where average costs increase as a firm grows. It uses examples of factory expansion to illustrate how increased size can lead to inefficiencies. Graphical representations show how average cost curves behave under these conditions. Managerial diseconomies, such as poor communication and low motivation, are discussed as contributing factors. The tutorial concludes by examining how diseconomies of scale affect market structure, often leading to markets with many small firms due to the higher costs faced by larger firms.

What is the primary effect of diseconomies of scale on a firm's average costs?

• They fluctuate unpredictably.

• They increase as the firm grows.

• They remain constant regardless of firm size.

• They decrease as the firm grows.

In the factory example, what happens when the factory becomes too crowded?

• Output increases without any issues.

• Average costs decrease further.

• The factory needs to be expanded to increase output.

• Labor productivity increases.

How does the average cost curve behave initially as labor is added in the factory example?

• It forms a zigzag pattern.

• It slopes downward.

• It remains flat.

• It slopes upward.

What does the long-run average cost curve represent in the context of diseconomies of scale?

• The maximum average costs achievable at any output level.

• The minimum average costs achievable at any output level.

• The average costs when all factors of production are fixed.

• The average costs when all factors of production are flexible.

Which of the following is a managerial diseconomy that can occur in large firms?

• Poor quality communications and coordination.

• Increased labor motivation.

• Enhanced principal-agent alignment.

• Improved communication efficiency.

How do diseconomies of scale influence market structure?

• They result in monopolistic markets.

• They lead to markets with many small firms.

• They have no impact on market structure.

• They encourage the dominance of large firms.

What is a potential consequence of low labor motivation in large firms?

• Increased productivity.

• Decreased average costs.

• Higher average costs due to lower productivity.

• Improved employee satisfaction.