Question

explain Disconomies of scale and give examples and graw a graph illustrates dieconomies of scale

Answer 1

Diseconomies of scale happens when a firm has grown so vast and huge that the costs associated with per unit of goods increases.When this happens, a firm will experience exactly opposite effects of economies of scale.The firms costs will not decline when the output increases,instead, the firm's marginal costs will increase when it produces more units of output.It usually happens when the management is having problems with controlling the workforce which has increased a lot where coordination is not possible.

Consider the diagram below-

Diseconomies of scale will result in increase in long run average cost for the firm when it expands beyond it's optimum scale at Q.

Example of diseconomies-

Large firms have difficulty in managing its workforce as the communication of message and policies has to travel to various departments and often various countries which results in time gap and by the time,the information reaches the proper recipient,it may already be obsolete or ineffective.A large firm can repond to change in peoples expectation and fashion less efectively than a small firm.The large firm will often employ people and pay them huge wages but it may not proved to be productive for the firm if these employees cannot motivate the people or are not supervised.

Coordination becomes very difficult as it is easy to coordinate the operations when the number of workers are say only 20 than a workforece of 2000.It will also be difficult to control and motivate this huge workforce which will result in them losing motivation and productivity.