4.1.4.5 Diseconomies of Scale

diseconomies of scale

the cost disadvantage that firms may encounter as they expand production beyond a certain point resulting in an increase in average costs per unit

communication problems, worker motivation, bureaucracy, control/monitoring costs

what causes diseconomies of scale

firm grow => harder to share info quickly and accurately across departments

communication problems of DofS

large firms => employees less valued/connected to businesses => less productivity

worker motivation fails in DofS

large firms => more rules and procedures => higher costs and less innovation

bureaucracy of DofS

supervising large firm => more expense and complexity 

control/monitoring costs of DofS

higher average costs, eroding benefits of large-scale production and making the firm less cost productive

the inefficiencies of diseconomies of scale lead to:

minimum efficient scale(MES)

lowest level of production at which a firm can achieve the lowest average cost per unit

fully exploited/used EofS => meaning it has minimised costs and is producing efficiently

At the MES the firm has

more production results in minimal additional cost savings, leading to DofS

Beyond the MES: