9.1f - Diseconomies of Scale Flashcards
Diseconomies of scale definition
When the production cost per unit increases above the efficient level
What are the different types of diseconomies of scale?
- Co-ordination
- Communication
- Managerial
- Technical
How can co-ordination diseconomies occur?
When a business becomes so large that the people at the top do not know what the people at the bottom are doing
How can communication diseconomies occur?
When messages get distorted as they are passed through too large a hierarchy
How can motivation diseconomies occur?
When lack of individualism in a large firm means workers feel their efforts go unnoticed
Why can technical diseconomies occur?
As businesses become larger they become harder to organise
Disadvantages of diseconomies of scale:
- Competitive disadvantage
- Higher unit costs means either lower profit margin or an increase in price
How can a business prevent diseconomies of scale?
- Strong leadership
- Delegation
- Decentralisation
