Friday, 27 September 2013

Diseconomies of Scale

Diseconomies of Scale

This is an increase in a firm’s average cost as output increases. A business that is too big will suffer from diseconomies of scale, e.g. NHS
  • Bureaucracy – as the firm gets bigger, they need more managers but don’t add to directly to output. This slows decision making and makes communication difficult

  • Labour relations – worker motivation will fall as large businesses tend to be less personal

  • Control and coordinationcoordinating factors of production in a large business is more difficult

Due to improvements in ICT businesses can become larger as communication and coordination becomes less of a problem