The correct answer is: C. internal economies being greater than external diseconomies.
Internal economies are cost reductions that occur within a firm as it expands its output. They can be due to factors such as specialization, division of labor, and learning by doing. External economies are cost reductions that occur in an industry as a whole as the industry expands. They can be due to factors such as the development of specialized suppliers, the growth of a skilled labor force, and the accumulation of knowledge and experience.
When internal economies exceed external diseconomies, a firm’s costs of production will decrease as it expands its output. This is because the firm will be able to take advantage of the cost reductions associated with specialization, division of labor, and learning by doing. However, if external diseconomies exceed internal economies, a firm’s costs of production will increase as it expands its output. This is because the firm will be subject to the cost increases associated with the growth of the industry, such as the congestion of transportation and communication networks.
In conclusion, the correct answer is: C. internal economies being greater than external diseconomies.