9.1f Diseconomies of Scale Flashcards
Diseconomies of scale definition
Factors which cause the average production cost per unit to increase above the efficient level
Types of diseconomies of scale:
- Co-ordination diseconomies
- Communication diseconomies
- Motivation diseconomies
- Technical diseconomies
What happens in co-ordination diseconomies?
The business becomes so large that a lack of control occurs
What is co-ordination diseconomies often called?
Red tape or bureaucracy
What happens in communication diseconomies?
Messages get distorted as they are passed through too large a hierarchy
What are the results of communication diseconomies?
Workings feel they do not know what is going on leading to a waste of time and money
What happens in motivation diseconomies?
A lack of individualism in a large firm means workers may feel efforts go unnoticed so become less motivated
What happens in technical diseconomies?
Large scale businesses are difficult to organise to problems in one area may effect other areas.
Drawbacks of diseconomies of scale:
- Competitive disadvantage (higher costs)
- Higher unit costs means either low profit margin or an increase in price and lost customers
Ways to prevent diseconomies of scale:
- Strong leadership
- Delegation
- Decentralisation