diseconomies of scale

Question 1

define diseconomies of scale

Answer 1

occur for a firm when an increase in the scale of production
leads to production at higher long-run average costs

Question 2

define internal diseconomies of scale

Answer 2

diseconomies of scale that arise from the expansion
of a firm

Question 3

define external diseconomies of scale

Answer 3

diseconomies of scale that arise from the expansion
of the industry in which a firm is operating

Question 4

what internal diseconomies are there?

Answer 4

• Control
• Coordination
• Cooperation

Question 5

what is control diseconomies?

Answer 5

Mangers find it harder to control what workers do due to the complexity of monitoring large numbers of workers (similar to the principal-agent problem)

Question 6

what is coordination diseconomies?

Answer 6

Mangers find it harder to coordinate the activities of workers and between teams due to the complexity of communicating with large numbers of people. This may take place over several countries and time zones, further increasing
the difficulty.

Question 7

what is cooperation diseconomies?

Answer 7

Workers in large firms may develop a sense of alienation and loss of morale if they don’t feel listened to, leading to wastage of factor inputs and higher costs. This may be caused by, or lead to, office politics.

Question 8

what external diseconomies are there?

Answer 8

• factor input diseconomies
• Exhausted local supplies diseconomies

Question 9

what is factor inputs diseconomies

Answer 9

As the industry grows from a single, or many, growing firms, the increased demand, ceteris paribus, leads to increased prices of factor inputs

Question 10

what are exhausted local supplies diseconomies?

Answer 10

Bulk buying may exhaust nearby, local supplies which leads to increased transport costs of additional supplies bought from further away

Question 11

analysis of coordination diseconomies

Answer 11

When a firm expands across multiple sites in different time zones, coordination diseconomies can occur. This is because managers find communicating with their subordinates becomes more complex and time consuming.

Question 12

evaluation: causes and significance

Answer 12

Causes
1) Different types of market experience diseconomies of scale at different points. The
greater the proportion of a firm’s costs that are variable costs, the more quickly a
firm may hit decreasing returns to scale.

Significance
1) The more quickly incumbent firms experience diseconomies of scale, the more
potential there is for new firms to enter the market and complete.