Diseconomies Of Scale

Question 1

What are diseconomies of scale

Answer 1

Diseconomies are the factors that cause higher costs per unit of output when the scale of an organisation continues to increase – it is a cause of inefficiency in large organisations.

Question 2

Internal

Answer 2

Coordination issues
Communication issues
Motivation issues

Question 3

Coordination issues

Answer 3

the larger an organisation becomes, the more difficult it is to coordinate. Inevitably, there is a good deal of delegation and this empowerment of more and more managers to make their own decisions can result in different departments heading in different directions. To counter this, numerous management meetings have to be held. The time that managers spend in meetings, in an attempt to ensure better coordination within large organisations, can be viewed as a significant overhead cost.

Question 4

Communication issues

Answer 4

as an organisation grows and levels of hierarchy increase, the efficiency and effectiveness of communication breaks down. This leads to an increase in misunderstanding and inefficiency as each level of hierarchy grows further and further apart and messages become distorted, resulting in increasing average costs.

Question 5

Motivation issues

Answer 5

with larger businesses it is harder to satisfy and motivate workers as many may feel that their views are ignored because of how distanced they are from the organisation’s decision makers. This means that they may not give their best as they are not focused on the organisation’s aims and objectives.

Question 6

External

Answer 6

Overcrowding in industrial areas
Increased price of resources

Question 7

Overcrowding in industrial areas

Answer 7

traffic congestion may occur, resulting in late deliveries and staff arriving late for work. Local residents may resent this and therefore public relations could suffer.

Question 8

Increased price of resources

Answer 8

more businesses in an area means increased demand for labour to work in that industry and the best employees may be harder to recruit and keep. Land, services and materials may all become more expensive as the industry grows and demand for such resources increases.