What characterizes external diseconomies of scale?

External diseconomies of scale occur when an increase in industry output leads to rising average costs. This situation typically arises not from the firm's own operations but from factors affecting the industry as a whole. When an industry expands, it can lead to increased costs for all firms due to various reasons such as overcrowding, increased demand for resources like labor and materials, or strains on infrastructure.

As more firms enter an industry and production expands, the increased competition for the same resources can drive costs up. This could manifest as higher wages demanded by workers due to more job opportunities or increased prices for raw materials as the supply becomes limited relative to the industry’s needs. Therefore, the essence of external diseconomies of scale is that the expanding industry faces rising average costs, negatively impacting the profitability and sustainability of firms within that industry.

The other options do not accurately characterize external diseconomies of scale: a decrease in average costs describes economies of scale, benefits that apply to individual firms refer to internal economies of scale, and higher efficiency in production is associated with improved processes rather than external pressures that result in increased costs.