Which of the following is the primary cause of diseconomies of scale in a firm?

• A. Enhanced access to financial markets
• B. Increasing managerial inefficiencies as the firm grows larger
• C. Lower input prices due to bulk purchasing
• D. Improved specialization of labor

Answer: (B)

Verified step by step guidance

1. Understand the concept of diseconomies of scale: Diseconomies of scale occur when a firm's long-run average costs increase as the firm expands its output beyond a certain point.
2. Identify the typical causes of diseconomies of scale: These often include factors such as increased complexity in management, communication problems, and coordination difficulties as the firm grows larger.
3. Analyze each option in the context of diseconomies of scale:
4. - Enhanced access to financial markets usually helps reduce costs, so it is not a cause of diseconomies of scale.
5. - Increasing managerial inefficiencies as the firm grows larger is a classic cause of diseconomies of scale because managing a larger organization becomes more complex and less efficient.