As output increases, eventually __________ (LO7) a) economies of scale become larger than diseconomies of scale b) diseconomies of scale become larger than economies of scale c) economies of scale and diseconomies of scale both increase d) economies of scale and diseconomies of scale both decrease

Economies of scale occur when the cost per unit of output decreases as the scale of production increases. This can result from various factors, such as specialization of labor, bulk purchasing, or more efficient technology.

Diseconomies of scale happen when the cost per unit of output increases as the scale of production increases. This can happen due to factors such as increased bureaucratic inefficiencies, coordination problems, or slower decision-making processes.

Now that we understand the concepts, let's compare the given statements: a) economies of scale become larger than diseconomies of scale: This statement implies that as output increases, the decrease in cost per unit (due to economies of scale) outweighs the increase in cost per unit (due to diseconomies of scale). This situation could happen at some point in the production process, but the statement does not properly capture the general relationship between output and both economies and diseconomies of scale. b) diseconomies of scale become larger than economies of scale: This statement suggests that as output increases, the increase in cost per unit (due to diseconomies of scale) becomes more significant than the decrease in cost per unit (due to economies of scale). This description is consistent with the typical behavior of firms in the long run, as at some point, inefficiencies become more critical and lead to increased costs per unit as production increases. c) economies of scale and diseconomies of scale both increase: This statement implies that both the decrease in cost per unit (economies of scale) and the increase in cost per unit (diseconomies of scale) become more significant as output increases. This doesn't make sense as they have opposite effects on cost per unit. d) economies of scale and diseconomies of scale both decrease: This statement implies that as output increases, both the decrease in cost per unit (economies of scale) and the increase in cost per unit (diseconomies of scale) become less significant. This doesn't capture the general relationship between output and both economies and diseconomies of scale.

Based on the analysis above, the correct answer is: b) diseconomies of scale become larger than economies of scale