What are Diseconomies of Scale?

Diseconomies of scale is a situation whereby the costs per unit of a company rises as a result of growth in business. 

What is the Effect of Disceconomies of Scale?

In diseconomies of scale, the expansion of a business creates an increase in the unit cost of production, rather than a decrease in costs of production. That is, the marginal cost of a product increases and this creates costs disadvantages for the company.

When Do Economies of Scale Occur?

Diseconomies of scale are realized when economies of scale reach their limit and there is an increase in the costs per unit of items produced by a business.

What Causes Diseconomies of Scale Important?

Several reasons/factors lead to the occurrence of diseconomies of scale, the major factors are;

• An overwhelming increase in the number of employees, equipment, machinery that a company has.
• The inability of a company to effectively manage organizational growth or increase in size and workforce strength.
• An increase in the level of waste due to difficulty in managing large resources.

Problems With Diseconomies of Scale

Diseconomies of scale have some problems associated with it, these are;

• It reduces effective communication in a company or business.
• It creates a leg between operations and the level of outputs.
• It causes a decline in motivation of employees, this is because they feel they are not doing enough or are less-valued and thereby become demotivated.

Relate Topics

• Theory of the Firm
• Capital Formation
• Rent Seeking
• Structure Conduct Performance Model
• Integration
• Co-Insurance Effect
• Conglomerates
• Cost vs Profit Center
• Accelerator Theory
• Market Structure
• Fixed Cost vs Variable Cost
• Actual vs Implicit Costs
• Explicit Costs
• True Cost Economics
• Accounting Profit
• Economic Profit
• What are Factors of Production?
• Factor Income
• Production Function
• Fixed and Variable Inputs
• Short-Run and Long-Run Production
• Short Run
• Total Product
• Marginal Product
• Value of Marginal Product
• Law of Marginal Diminishing Product
• Production Function
• Production Possibilities Frontier
• Capital 
• Labor Theory of Value
• How the Production Function Estimates Inputs
• Factor Payment
• Economic Rent
• Cost Function
• Incremental Cost
• Marginal Input Cost  
• Fixed and Variable Costs
• Diminishing Marginal Productivity
• Costs Relate to Diminishing Marginal Productivity
• Law of Diminishing Marginal Returns
• Average Total Cost
• Average Variable Cost
• Marginal Cost
• Average Profit or Profit Margin
• Accounting Profit
• Economic Profit
• Normal Profit
• Short and Long-Run Production
• Cost Curves
• Long-Run Average Cost (LRAC)
• Production Technologies
• Economies of Scope
• Economies of Scale
• Diseconomies of Scale
• Minimum Efficient Scale
• Increasing, Constant, and Decreasing Returns to Scale
• Shape of the Average Long-Run and Short-Run Cost Curves
• Returns to Scale
• Diseconomies of Scale
• Long-Run Average Cost Curve Affect Industry Competitors
• Technology Shifts the Long-Run Average Cost Curve
• Law of Diminishing Marginal Returns