Internal Diseconomies of Scale from Firm Growth Steps:

• Define internal diseconomies of scale as rising average costs due to the firm's own expansion inefficiencies.
• Assess each option for internal factors linked to size increase.
• Eliminate external or non-cost-rising causes.
• Select the option showing internal operational inefficiency.

Why A is correct:

• A merger expands firm size, creating bureaucratic layers that slow decision-making and raise average costs, matching the definition of internal diseconomies.

Why the others are wrong:

• B: R&D spending is an investment for innovation, often leading to economies of scale through new efficiencies.
• C: Falling demand is an external market shift causing revenue issues, not internal cost rises from growth.
• D: Skilled labour shortage is an external factor market constraint, unrelated to the firm's internal expansion.

Final answer: A