What Is Diseconomies of Scale?

Diseconomies of scale is a concept that describes an organization’s costs of production increase as their production increases. When a company produces more, the costs of production per unit rises due to a variety of factors. Generally, these increasing costs are caused by inefficiencies in management, operations, or process, as the company grows.

Examples of Diseconomies of Scale

There are a number of common examples of diseconomies of scale as a company grows. One of the earliest, and most widely known, is increased bureaucracy. As an organization grows, it is likely to create new positions or redesign existing ones. This leads to the creation of additional layers of management and administrative overhead, both of which can cause inefficiencies and increased costs.

Other examples of diseconomies of scale include increasing communication problems which can be caused by an organization becoming too large, as well as fewer incentive for workers and lack of flexible policies.

Also, the organization may become too large to be able to respond effectively to changing market conditions or customer needs. This can cause problems with inadequate services being provided or lack of customer satisfaction.

Understanding Diseconomies of Scale

Understanding diseconomies of scale is important for college students studying business and finance. It is important to recognize that there are always costs associated with growth and it is necessary to find the right size and balance in order to ensure efficient operations and the delivery of the highest quality products and services.

It is also important to remember that diseconomies of scale can occur even without external factors, such as an increase in the size of the market share. All organizations, regardless of size, must become aware of potential economizing strategies to ensure optimal results.