Question

Match correctly the factors of economies and diseconomies of scale in List-I with List-II:
\begin{tabular{|l|l|} List-I (Types of economies/diseconomies) & List-II (Factors)
(A) Internal economies of scale & (I) Diminishing productivity
(B) External economies of scale & (II) Division of labour
(C) Internal diseconomies of scale & (III) Developed market and infrastructure
(D) External diseconomies of scale & (IV) Depletion of resources

Choose the correct answer from the options given below:

• (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
• (A) - (II), (B) - (III), (C) - (I), (D) - (IV)
• (A) - (I), (B) - (II), (C) - (IV), (D) - (III)
• (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

Hint:

To easily remember:
- Internal = Happens inside the firm (Division of labour, management efficiency).
- External = Happens outside in the industry/region (Infrastructure, resource pool).
- Economies = Good/Cost-reducing.
- Diseconomies = Bad/Cost-increasing.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Economies of scale refer to cost advantages that a business obtains due to its size or scale of operation, where the cost per unit of output decreases as scale increases.
Diseconomies of scale occur when further expansion causes the cost per unit to rise.
These are classified as:
- Internal: Factors specific to the individual firm.
- External: Industry-wide factors that affect all firms in that sector.

Step 2: Detailed Explanation:
Let us match the terms systematically:
- (A) Internal economies of scale: These are cost-saving benefits that occur within an individual firm as it expands internally.
A key driver of this is the division of labour and specialization. As a firm grows, workers can specialize in specific tasks, boosting efficiency.
Hence, (A) matches with (II).
- (B) External economies of scale: These are cost-saving benefits enjoyed by all firms in an industry as the industry grows in a specific region.
A prime example is the availability of a developed market and infrastructure (such as specialized transportation, roads, and a skilled labor pool in that area).
Hence, (B) matches with (III).
- (C) Internal diseconomies of scale: These are cost increases that occur within a firm when it expands beyond its optimal size.
As a firm grows too large, management and communication become inefficient, leading to coordination issues and diminishing productivity of inputs.
Hence, (C) matches with (I).
- (D) External diseconomies of scale: These are industry-wide cost increases that affect all firms as the entire industry grows.
For example, as many firms set up in the same area, they compete for raw materials, leading to the depletion of resources and higher input prices for everyone.
Hence, (D) matches with (IV).
This yields the matching sequence: (A)-(II), (B)-(III), (C)-(I), (D)-(IV).

Step 3: Final Answer:
The correct option is (B).