Transportation costs and management are two reasons that firms experience:

• A. Economies of scale
• B. Diseconomies of scale
• C. Constant returns to scale
• D. Learning curve

Answer: (B)

As firms get larger, coordination and management become more complex, and carrying goods over longer distances adds transportation costs. These factors push average total costs up as output expands, which is the idea behind diseconomies of scale. In other words, bigger isn’t always better—beyond a certain point, increasing size leads to higher per-unit costs due to inefficiencies in administration, communication, and logistics.

This differs from economies of scale, where costs fall as production increases; constant returns to scale, where costs rise in direct proportion to output; and the learning curve, where costs decline over time with accumulated experience rather than simply with firm size.