A pharmaceutical company decides not to establish an additional manufacturing unit because the expected savings from technical specialization would…

CA Foundation · Business Economics · MTP · September 2026
A pharmaceutical company decides not to establish an additional manufacturing unit because the expected savings from technical specialization would be outweighed by higher administrative complexity, communication delays, and rising coordination costs. Which concept best explains this decision?
(A) A. opportunity cost
(B) B. diseconomies of scale beyond the optimum level of production
(C) C. law of demand
(D) D. consumer equilibrium

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. diseconomies of scale beyond the optimum level of production

Topics: Theory of Production and Cost

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