IB Business Management SL 1.5.1 Economies and diseconomies of scale Question Bank

Diseconomies of scale refer to increases in per unit cost because of increased complexity that can occur with growth. One example from the stimulus of a diseconomy of scale is the ever more costly administration of manufacturing in 12 small factories in Algiers. If LE operated out of one large factory, managing deliveries to the factory, organizing the work schedules, and managing shipments of finished product would presumably be more streamlined than managing these processes through 12 different sites. Other diseconomies of scale relevant to L E include:
- financial/transactional diseconomies of scale (related to the having use of 12 small factories versus one large factory)
- technical diseconomies of scale (engineers may have to move from one factory to the next in resolving technical issues, driving up costs)
- inventory management.

Accept any other diseconomy of scale appropriately described.

Award [1 mark] for a basic description or an identification of a diseconomy of scale that conveys partial knowledge and understanding of the concept of diseconomy of scale.

Award [2 marks] for a full, clear description based on L E that conveys knowledge and understanding similar to the answer above. Though the candidate does not have to say "increases in per unit cost", to receive [2 marks] a candidate must convey that idea in the description.

(c) Calculate for LE:

For parts (i) to (v) accept properly rounded numbers to 1 place right of decimal point and any answer specified as acceptable in the markscheme.

If 1 place to the right of the decimal is zero and the candidate correctly rounds to an integer, the response is correct.

Do not penalize candidates if they omit the € sign, days, percentage sign, or other appropriate symbol, nor if they use the incorrect symbol.