Why Do Firms Tend to Experience Decreasing Returns to Scale

question 57

Multiple Choice

Why do firms tend to experience decreasing returns to scale at high levels of output?

• A) Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.
• B) Government tax policy tends to discourage large-scale production operations.
• C) Firms face fewer problems with inventory management and marketing as output reaches very high levels.
• D) Firms tend to use more capital and less labor at higher levels of output.

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Definitions:

Operating Cash Flow

The total money yielded from a company's standard business operations.

Net Income

The resulting earnings of a business after deducting all expenses and taxes from its total revenue.

Net Working Capital

Represents the difference between a company's current assets and current liabilities, highlighting its short-term financial health and ability to cover its obligations.

Accounts Receivable

The sums of money due to a company for goods or services that have been delivered or used but not yet paid for by customers.