Diseconomies Of Scale

Published Dec 26, 2022

Definition of Diseconomies of Scale

Diseconomies of Scale are defined as the negative effects of increasing the size of a business. That means as a business grows, it may become more challenging to manage and coordinate its activities. This can lead to higher costs and a decrease in efficiency.

Example

To illustrate this, let’s look at a small bakery. The bakery has been in business for several years and is now looking to expand. To do this, they decide to open a second location. This means they need to hire more staff, buy more equipment, and manage two locations instead of one. As a result, the bakery’s costs increase, making it more difficult to coordinate the activities of the two locations. This is an example of diseconomies of scale.

Why Diseconomies of Scale Matter

Diseconomies of scale are an important concept for businesses of all sizes. On the one hand, they show that there is a limit to how large a business can grow before it becomes too difficult to manage. On the other hand, they also show that businesses need to be aware of the costs associated with expanding their operations. That means businesses must carefully consider the costs and benefits of expanding before making any decisions.