Diseconomies of scale (AS/A LEVELS/IB/IAL)
Diseconomies of scale (AS/A LEVELS/IB/IAL)
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
Diseconomies of scale
Definition
Diseconomies of scale occur when output increases, long run average costs also increase.
Examples of Diseconomies of Scale
Communication
As the firm expands and grows in size, some workers may start to feel excluded. This may lead to a loss of motivation, suggesting lower productivity levels and higher average costs
Managerial
The larger a firm gets, the harder it can become to manage all employees and monitor their productivity
Coordination
The larger a firm gets, the harder it can become to manage all employees and coordinate each worker
At first, average costs fall as firms can benefit from Economies of Scale. This is shown at point A on the graph – as average costs fall, output increases
However – reaching the optimum level of output – average costs start to rise, due to Diseconomies of Scale. This is shown by point B on the graph
The Minimum Efficient Scale is the lowest point on the graph and depicts when average costs are the lowest and Economies of Scale are fully utilised
Quick Fire Quiz – Knowledge Check
1. Define ‘Diseconomies of Scale’ (2 marks)
2. Identify and explain three examples of Diseconomies of Scale (6 marks)
3. Using a diagram, explain how: Economies of Scale, Diseconomies of Scale, and the Minimum Efficient Scale occur (6 marks)
Next Revision Topics:
- Economies of Scale
- Revenues
- Costs
- Normal profits, supernormal profits and losses
- Efficiency
- Perfect Competition
- Monopolistic Competition
- Monopoly
- Oligopoly
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