Diseconomies of scale

Diseconomies of scale happen when the costs per unit increase proportionately more than the increase in output. They are the forces that cause larger firms to produce goods and services at increased per-unit costs. They are less well known than what economists have long understood as "economies of scale", the forces which enable larger firms to produce goods and services at reduced per-unit costs. The existence of diseconomies of scale is comparable to Giffen goods. There is not much evidence to support that they occur.


Causes larger firms to produce goods and services.

Communicating- A business can get too big, and as it grows communication between the various sections of that business can be difficult and as a result workers can be less informed about what to do and when. This causes the business to be function less efficiently.

Motivation- As a business grows into a larger business their loyalty and work ethic can be affected negatively because there is no sense of a tight knit work force. If they get lazy they may tend to not care and that could increase their production costs.

Office Politics- The term "office politics" refers to when someone with a (generally) high-ranking position in a company will do things to benefit themselves, as opposed to benefitting the company. We assume that people in control of a company are usually in their correct mind and act appropriately to maximise their profits and ensure that their business grows. This is why Diseconomies of Scale are comparable to Giffen goods, they tend not to happen. We would think that a company would prefer not to produce their goods and services at high per unit costs.

Diseconomies on a curveEdit

Relating to the image on the right, diseconomies occur to the right of the minimum point of the curve. So as a business tries to increase it's output, their costs per quantity increase as well, but in a greater amount, hence the parabolic curve.

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