theme 3 : diseconomies of scale

as a firm grows they often suffer from what

diseconomies of scale

what are diseconomies of scale

• when their average costs of production ruse as output increases

• large scale operations become more expensive

evaluation point

• some firms that expand very quickly suffer from congestion costs

• but these can be out right with time and are not to be confused with dis economies of scale

3 types of diseconomies of scale

• control

• co-ordination

• co-operation

control diseconomy of scale explanation

• improving control of your organisation means you have to employ better software, employ more people which increases your costs

co-ordination diseconomy of scale explanation

• if your business is in multiple countries, coordinating is difficult due to timezones, language barriers etc

• if you employ people to do this for you your costs will increase

co-operation diseconomy of scale explanation

• the bigger a business is, the more layers of management you have the harder it is to keep workers motivated and therefore the harder it is to get cooperation

• closely linked to staff motivation - if you feel distant from those that run the business, you’re less likely to be motivated