External Diseconomies of Scale and Internal Growth
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Questions and Answers

What is an external diseconomy of scale related to natural resources?

  • Increased output requiring more raw materials (correct)
  • Lower production costs due to resource availability
  • Improved efficiency in resource utilization
  • Decreased demand for raw materials

    • How can limited infrastructure affect production costs in a growing industry?

  • By providing excess capacity for production
  • By increasing costs due to slower deliveries (correct)
  • By reducing delivery times and lowering costs
  • By creating more efficient transportation options

    • What effect does increased regulation have on production costs for expanding industries?

  • Regulatory relief reduces costs
  • Less government attention decreases costs
  • Regulations have no effect on production costs
  • Higher regulations lead to increased costs of production (correct)

    • Which factor is NOT considered an external diseconomy of scale?

    <p>Increased efficiency due to economies of scale</p> Signup and view all the answers

    What is meant by internal (organic) growth in a business?

    <p>Expansion of a business with its own resources</p> Signup and view all the answers

    What is a consequence of limited natural resources for businesses in an expanding industry?

    <p>Higher unit costs due to increased demand for inputs</p> Signup and view all the answers

    Internal growth refers to the expansion of a business using external resources.

    <p>False</p> Signup and view all the answers

    Name one type of external diseconomy of scale.

    <p>Limited natural resources, limited infrastructure, increased regulation, or pollution.</p> Signup and view all the answers

    When businesses grow their output, they may face ______ due to increased industrial expansion.

    <p>external diseconomies of scale</p> Signup and view all the answers

    Match the following issues with their descriptions:

    <p>Limited natural resources = Demand exceeds availability Limited infrastructure = Increased traffic and delays Increased regulation = Higher compliance costs Pollution = Environmental damage due to growth</p> Signup and view all the answers

    Study Notes

    External Diseconomies of Scale

    • External diseconomies of scale occur when industry growth increases the production costs for individual businesses.
    • Factors contributing to external diseconomies include:
      • Limited natural resources: Increased industry output demands more raw materials, potentially driving up prices.
      • Limited infrastructure: Expanding industries use infrastructure more, slowing deliveries and increasing production costs.
      • Increased regulation: Expanding industries attract greater government scrutiny, leading to more laws and higher compliance costs.
      • Pollution: Natural disasters cause significant costs by damaging infrastructure and resources. This is distinct from industry-related pollution.

    Internal Growth

    • Internal (organic) growth is a business expansion supported by its own resources.

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    Description

    This quiz explores the concepts of external diseconomies of scale and internal growth in businesses. Learn how industry expansion can lead to increased costs and how companies can grow using their own resources. Test your understanding of these key economic principles.

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