Unfortunately, the corporation is experiencing diseconomies of scale and an increasing average unit cost to the right of Q1. At point Q1, this company has the lowest average unit cost if the company produces more or fewer products.īy producing more to the left of Q1, the firm can employ economies of scale to reduce average expenses. The diagram above depicts a diseconomy of scale. Under this technique, a corporation will incur greater costs as output increases rather than continuously cutting costs and increasing output. It occurs when a company's economies of scale fail. Diseconomies of scale occur when a corporation or firm grows and its marginal costs per unit with increased production of one more unit.
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