Diseconomies of scale Flashcards
1
Q
what is diseconomies of scale
A
when business exapands in the long run unit cost of production increases leading to higher average costs
2
Q
what are the causes of diseconomies of scale
A
lack of control, coordination, cooperation 3C’s
office politics/poor communication
risk aversion
increase in complexity
3
Q
what do diseconomies of scale suggest
A
business is beyond optimum size
business is suffering from production ineffeciency (not on the lowest point of its AC curve)
Higher unit cost reducing total profits
4
Q
how do you avoid diseconomies of scale
A
Human resource management - support staff
performance related pay schemes - financial incentive
Out sourcing- reduce costs
