Match each firm growth scenario on the left with its corresponding category of economy or diseconomy of scale on the right.
- A commercial poultry farm purchasing feed in bulk at discounted prices per unit.Commercial internal economy of scale
- An expanding factory experiencing communication bottlenecks and administrative delays due to excessive management layers.Managerial internal diseconomy of scale
- A cluster of leather tanneries benefiting from a newly built government effluent treatment facility serving the industrial area.External economy of scale
Answer
Bulk purchasing of feed at discounted prices matches Commercial internal economy of scale; communication bottlenecks from administrative expansion match Managerial internal diseconomy of scale; shared industrial facilities benefiting local tanneries match External economy of scale.
Bulk purchasing is an internal commercial cost advantage gained directly by an individual firm expanding its purchases. Communication breakdowns due to excessive administrative layers represent internal managerial inefficiencies (diseconomies). Shared regional infrastructure benefits all firms within the industry location, defining an external economy of scale.
Step-by-Step Solution
Key Concept
Distinguishing between internal commercial economies, managerial diseconomies, and external economies of scale