diminishing marginal returns when only one input is allowed to change, and at the same time has economies of

scale when all inputs change together to produce a larger-scale operation.

Finally, the right-hand portion of the long-run average cost curve, running from output level Q4 to Q5, shows a
situation where, as the level of output and the scale rises, average costs rise as well. We call this situation

diseconomies of scale. A firm or a factory can grow so large that it becomes very difficult to manage, resulting

in unnecessarily high costs as many layers of management try to communicate with workers and with each

other, and as failures to communicate lead to disruptions in the flow of work and materials. Not many overly

large factories exist in the real world, because with their very high production costs, they are unable to

compete for long against plants with lower average costs of production. However, in some planned economies,
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