A large firm may experience diseconomies of scale if there is

Analyze the question: It asks what causes diseconomies of scale in a large firm.

Explain the concept:

• Economies of scale are cost advantages a firm gets as it grows, so average (unit) cost falls as output rises.
• Diseconomies of scale happen when a firm becomes too large, and average cost starts to rise as output increases.

Common causes of diseconomies of scale:

• Management and coordination problems (communication delays, slow decisions)
• Bureaucracy and red tape
• Reduced worker motivation and supervision problems
• Overcrowding or overuse of facilities

Check each option:

• A. Difficulty in coordinating decisions: This is a classic managerial diseconomy. In a very large firm, many departments, layers of management, and slow communication make it hard to coordinate decisions, so costs rise. ✔
• B. Division of labor in production: This is a source of economies of scale, because specialization raises productivity. ✘
• C. Employment of more specialists: This is also a source of economies of scale (technical and managerial economies). ✘
• D. Decrease in the cost of production: This is the result of economies of scale, the opposite of diseconomies. ✘

Tip: Think "economies = efficient, diseconomies = disorganized." If an option describes something that makes a big firm more efficient or cheaper (specialization, bulk buying, lower costs), it is an economy of scale. If it describes management trouble, delays, or rising costs, it is a diseconomy.