Diseconomies of scale refer to the negative effects on a company's average cost per unit as the company increases production. This concept is the opposite of economies of scale, which refers to the positive effects on a company's average cost per unit as the company increases production.
There are several reasons why diseconomies of scale may occur. One reason is the increased difficulty in coordinating and managing a larger number of employees. As a company grows, it may become more difficult for managers to effectively communicate with and motivate their employees, leading to decreased efficiency.
Another reason for diseconomies of scale is the increased difficulty in decision-making as a company grows. Large companies may have many different departments and layers of management, which can lead to delays in decision-making and a lack of flexibility in responding to changes in the market.
In addition, as a company grows, it may become more difficult to maintain the same level of quality control. For example, a small bakery may be able to personally oversee the production of each batch of bread, but as the company grows, it may become impossible for the owners to personally oversee every batch. This can lead to a decrease in the overall quality of the company's products.
Finally, diseconomies of scale can occur due to the increased cost of resources as a company grows. For example, a company may have to pay more for raw materials as it increases production, leading to higher costs per unit.
In conclusion, diseconomies of scale refer to the negative effects on a company's average cost per unit as the company increases production. These effects can be due to a variety of factors, including the increased difficulty in coordinating and managing a larger number of employees, the increased difficulty in decision-making, the decreased ability to maintain quality control, and the increased cost of resources.
