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External Diseconomies of Scale and Internal Growth

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External Diseconomies of Scale and Internal Growth

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Questions and Answers

What is meant by external diseconomies of scale?

Reduced production costs due to increased output

Improvement in infrastructure supporting business growth

Increased unit cost of production due to industry expansion (correct)

Lower raw material prices with higher production

Which of the following is a type of external diseconomies of scale related to natural resources?

Increased pollution from larger production processes

Increased regulation affecting production timelines

Limited availability of raw materials driving costs up (correct)

Enhanced infrastructure reducing delivery times

How can limited infrastructure result in external diseconomies of scale?

By simplifying logistics and delivery mechanisms

By boosting the speed of resource acquisition

By lowering overall production efficiency

By hampering delivery times and increasing costs (correct)

What impact can increased regulation have on businesses experiencing external diseconomies of scale?

<p>It may complicate compliance and increase production costs</p> Signup and view all the answers

Which of the following best describes the concept of internal growth?

<p>Using a company's own resources for its expansion</p> Signup and view all the answers

Study Notes

External Diseconomies of Scale

External diseconomies of scale occur when the cost per unit of production increases for a business due to industry expansion.
Factors contributing to external diseconomies of scale include:
- Limited natural resources: Increased industry output leads to higher demand for raw materials, impacting production costs.
- Limited infrastructure: Expanding industries use infrastructure more, potentially slowing deliveries and raising production costs.
- Increased regulation: Growing industries attract more government oversight, leading to potentially higher production costs due to stricter laws and regulations.
- Pollution: Environmental issues like droughts, floods, storms, and fires can harm natural resources and infrastructure, increasing costs associated with damage and repairs.

Internal Growth

Internal (organic) growth refers to a business expanding using its own resources.

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Description

This quiz examines the concepts of external diseconomies of scale and internal growth within businesses. It explores how factors like limited resources, infrastructure, regulation, and pollution impact production costs while analyzing the methods of organic growth. Test your understanding of these economic concepts and their implications for business expansion.