PRC-3 · Chapter 12 · Question 6 of 69
If a massive global manufacturer increases all its inputs by 50%, but due to severe communication bottlenecks and bureaucratic inefficiencies, its total output only increases by 30%, the firm is experiencing:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Decreasing returns to scale
Explanation
Decreasing returns to scale happen when a firm grows so large that management and communication inefficiencies arise, causing output to grow at a slower rate than the increase in inputs.
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