Certified Production & Operations Manager (POM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

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What is a potential negative outcome of experiencing diseconomies of scale?

Increased efficiency

Lower average costs

Decreased profitability

Experiencing diseconomies of scale occurs when a company grows beyond an optimal size, leading to increased per-unit costs as output rises. This situation can arise due to various factors such as increased bureaucratic processes, communication breakdowns, or inefficiencies related to management and resource allocation. As a result, the average costs of production escalate rather than decrease, significantly impacting the financial performance of the organization.

Decreased profitability becomes a realistic concern because as production costs increase, the margin between revenue and costs narrows. This can squeeze profit margins, leading to lower overall profitability for the organization. Therefore, recognizing the potential for diseconomies of scale is crucial to maintain operational efficiency and profitability.

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Higher production speeds

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