Question

If Temper Company, a manufacturer of mattresses, was considering moving its production facilities to China but decided against it because the additional costs of shipping the mattresses back to the U.S. would offset the cost savings associated with moving the production facilities, the increased costs associated with shipping would be an example of A. learning-curve economies. B. diseconomies of scale. C. economies of scale. D. competitive advantages.

Answer 1

Answer:

B. diseconomies of scale

Explanation:

Diseconomies of scale occurr when a business experiences rising costs when it expands, either in output capacity, number of plant locations, or both.

In this case, Temper Company would experience diseconomies of scale because if it expanded its output capacity to China, it would incurr increasing transportation costs to the point of offsetting any gains made because of outsourcing. In other words, diversifying plant locations is negative for Temper Company, and as a result, this firm is suffering from diseconomies of scale.