Diseconomies of Scale Explained

Steps:

• Recall that economies and diseconomies of scale relate to how costs change with output levels.
• Define diseconomies of scale as rising average costs due to inefficiencies at high production.
• Examine each option for alignment with this cost behavior.
• Select the option matching increased average total costs.

Why C is correct:

• Diseconomies of scale occur when average total cost (ATC = TC/Q) rises as output (Q) increases, per standard microeconomic theory.

Why the others are wrong:

• A: Average revenue typically falls with output in competitive markets but unrelated to scale costs.
• B: Average fixed cost decreases with output, representing economies of scale, not diseconomies.
• D: Total costs always increase with output, but diseconomies specifically involve rising average costs.

Final answer: C