Diseconomies of Scale Flashcards

Name: Shalom Education
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What are diseconomies of scale?

They are when a firm grows and its average cost per unit rises.

It rises after the lowest point as output keeps growing.

Internal come from inside the firm, like poor control. External come from the industry, like higher input prices or congestion.

In a large firm, messages can be slow or unclear. This leads to mistakes and higher unit costs.

Many layers and departments make planning harder. Delays and errors then push up costs per unit.

Too many rules and managers slow decisions. This adds extra administration cost to each unit.

Staff may feel less valued, work slower, or make more errors. This raises unit costs.

If many firms expand, they compete for workers. Wages rise and costs per unit go up.

After the output level where average cost is lowest. Beyond that, making more raises average cost.

Different teams repeat the same tasks or orders. This wastes time and money and raises unit costs.

Use clear communication, cut layers of management, and let local teams make some decisions.