A Level Economics AQA Practice Exam

Which of the following is a type of diseconomies of scale?

1. Production inefficiencies

2. Low employee turnover

3. Increased market share

4. Strong brand loyalty

The correct answer is: Production inefficiencies

Diseconomies of scale occur when a company's per-unit costs begin to increase as production scales up. This situation can arise from various factors, including production inefficiencies, which can manifest in several ways as a firm grows. As businesses expand, they may face challenges such as communication breakdowns, bureaucratic delays, and coordination difficulties among different departments. These production inefficiencies can lead to wasted resources, decreased employee productivity, and overall higher costs per unit of output. In contrast, factors such as low employee turnover, increased market share, and strong brand loyalty are generally associated with benefits that larger firms might experience as they scale, contributing to economies of scale rather than diseconomies. Thus, recognizing production inefficiencies as a direct contributor to diseconomies of scale clarifies why this answer is accurate.