9.1f Diseconomies of Scale

Question 1

Diseconomies of scale definition

Answer 1

Factors which cause the average production cost per unit to increase above the efficient level

Question 2

Types of diseconomies of scale:

Answer 2

• Co-ordination diseconomies
• Communication diseconomies
• Motivation diseconomies
• Technical diseconomies

Question 3

What happens in co-ordination diseconomies?

Answer 3

The business becomes so large that a lack of control occurs

Question 4

What is co-ordination diseconomies often called?

Answer 4

Red tape or bureaucracy

Question 5

What happens in communication diseconomies?

Answer 5

Messages get distorted as they are passed through too large a hierarchy

Question 6

What are the results of communication diseconomies?

Answer 6

Workings feel they do not know what is going on leading to a waste of time and money

Question 7

What happens in motivation diseconomies?

Answer 7

A lack of individualism in a large firm means workers may feel efforts go unnoticed so become less motivated

Question 8

What happens in technical diseconomies?

Answer 8

Large scale businesses are difficult to organise to problems in one area may effect other areas.

Question 9

Drawbacks of diseconomies of scale:

Answer 9

• Competitive disadvantage (higher costs)

- Higher unit costs means either low profit margin or an increase in price and lost customers

Question 10

Ways to prevent diseconomies of scale:

Answer 10

• Strong leadership
• Delegation
• Decentralisation