GENERAL KNOWLEDGE

Detailed explanation-1: -Answer: In our study of returns of scale, we saw that when a firm starts expanding its scale of operations, it initially experiences and increase, stays constant for a while and then starts decreasing. In other words, it initially experiences economies of scale and after the optimum point, diseconomies of scale.

Detailed explanation-2: -The main cause of the internal diseconomies is the lack of efficient or skilled management. When a firm expands beyond a certain limit, it becomes difficult for the manager to manage it efficiently or to co-ordinate the process of production.

Detailed explanation-3: -There are two types of economies of scale: internal and external economies of scale. Internal economies of scale are firm-specific-or caused internally-while external economies of scale occur based on larger changes outside the firm. Both result in declining marginal costs of production, yet the net effect is the same.