General Certificate of Secondary Education (GCSE) Economics Practice Exam

When firms increase production, they may face higher average costs, which is a significant disadvantage. This can occur due to several reasons. One primary reason is that as production scales up, firms may encounter diseconomies of scale, where the cost per unit rises instead of falling. This can happen for various reasons, such as increased complexity in management, reduced worker productivity, and inefficiencies that develop when operations grow too large.

For instance, communication can become more difficult in larger organizations, leading to mismanagement or delays. Additionally, firms might have to invest in more advanced technology or machinery, which comes with higher initial costs. All these factors contribute to increased average costs, which can affect the firm's profitability if they cannot pass these costs onto consumers through higher prices.

In contrast, other options may appear beneficial or neutral in nature, such as increased market share and higher consumer satisfaction, which usually would not be seen as disadvantages. Meanwhile, lower profitability is a result of higher costs rather than a direct disadvantage of increasing production itself. Therefore, recognizing these dynamics helps to understand why higher average costs is the most fitting response to the question.