Answer to Question #288191 in Microeconomics for Tusshar

Question

. A firm with a given fixed level of capital, decides to increase its output by adding labor. 

However, if it experiences a fall in its output instead, what could be the reason for the same?

Answer 1

The reason could be diseconomies of scale which results due to two reasons, it could be external or internal. In external may be due to economic constraints of resources in which the company operates. it includes constraints in capacity on resources considered common and public goods due to inelasticity of price on supply for inputs. Internal diseconomies can arise due to technical issues of production within the firm.