Refer to Table 13-11. Which firm is experiencing diseconomies of scale?

• A. The firm whose long-run average total cost remains constant as output increases.
• B. The firm whose long-run average total cost decreases as output increases.
• C. The firm whose long-run average total cost increases as output increases.
• D. The firm whose marginal cost is less than average total cost at all output levels.

Answer: (C)

Verified step by step guidance

1. Understand the concept of economies and diseconomies of scale: Economies of scale occur when long-run average total cost (LRATC) decreases as output increases, indicating increasing efficiency. Diseconomies of scale occur when LRATC increases as output increases, indicating decreasing efficiency.
2. Identify the behavior of the long-run average total cost curve: If LRATC remains constant as output increases, the firm is experiencing constant returns to scale. If LRATC decreases, the firm has economies of scale. If LRATC increases, the firm has diseconomies of scale.
3. Analyze the options given: The firm whose LRATC remains constant is not experiencing diseconomies of scale. The firm whose LRATC decreases is experiencing economies of scale. The firm whose LRATC increases is experiencing diseconomies of scale.
4. Consider the role of marginal cost (MC) relative to average total cost (ATC): If MC is less than ATC, ATC is falling, which corresponds to economies of scale, not diseconomies.
5. Conclude that the correct identification of a firm experiencing diseconomies of scale is the one whose long-run average total cost increases as output increases.