A large firm in the newspaper industry employs 250 people, of which 32 are upper-level managers. As a result of this employee-to-manager ratio, the firm experiences 12.8% reduced productivity. At the same time, a small firm with 65 employees and 4 upper-level managers experiences 6.2% reduced productivity. If everything else is constant, what can we say about the cost structure in this industry over this range of production

The cost structure of both firms over a range of production faces or experiences dis economics of scale.

Explanation:

Solution

Given that:

First of all we have to compare the two firms separately before we can get the cost structure over the range of production.

Now

A large firm consists of 250 people, 32 upper level managers

With employee to manager ratio, the firm experiences a reduced productivity of = 12 %

A small firm consists of 65 employees, 4 upper level managers, experiences a reduced productivity of = 6.2%

In this case, the both firm has dis economics of scale.

The firms experience a higher or increase average cost which leads to a low productivity, and therefore an increase in the output.

Higher average cost = low productivity = increased outputs.