CLEP Microeconomics Exam Prep

Answer - B - Diseconomies of scale occur when the long-run average cost increases as output increases.

Key Takeaway: Be sure that you keep straight the differences between economies of scale, constant returns to scale, and diseconomies of scale. Economies of scale occur when a business is growing because the increasing size of a business leads to more specialized equipment and labor. Economies of scale happen when input is increased by X amount and output increase by more than X.

Constant returns of scale happen when inputs increase by X amount and output increase by the same amount. Diseconomies of scale, happens when business get too large to control. In this case, increased inputs are needed in order to get the same or even smaller changes in the level of the output.