diseconomies of scale

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Diseconomies of Scale

The decrease of efficiency in the making of a product by producing more of it. That is, diseconomies of scale occur when a company increases its output for a product such that it increases the cost per unit of the product. For example, assume that labor costs at a factory are constant as long as the factory produces between 100,000 and 500,000 units per month. If the factory produces more than 500,000 units per month, it may have to hire more workers, which would increase the cost per unit. It is easier for smaller companies to fall into diseconomies of scale because they have less control over their costs; indeed this can cause many smaller companies to be at a significant competitive disadvantage. See also: Economies of Scale.

diseconomies of scale

Diseconomies of scaleclick for a larger image
Fig. 48 Diseconomies of scale. In the range of output beyond point X, the firm is experiencing diseconomies of scale with costs increasing as output increases.

diseconomies of scale

the possible increase in long-run unit or AVERAGE COST that may occur as the scale of the firms’ output is increased beyond some critical point.

Initially, as output is increased, long-run average costs may at first decline, reflecting the presence of ECONOMIES OF SCALE, but after a certain point long-run average costs may start to rise. See Fig. 48 .

The most frequently cited sources of such diseconomies are the managerial and administration problems of controlling and coordinating large-scale operations and labour relations problems in large plants. See MINIMUM EFFICIENT SCALE, EXTERNAL DISECONOMIES OF SCALE.

References in periodicals archive ?
In roads, there is a diseconomy of scale, as several narrower roads function much better than one wide road.
This diseconomy of scale in the companies' innovation activities is related to a significantly lower innovation productivity in large pharmaceutical companies.
In the context of MENA, escalating project costs stemmed from the concurrent inflation of the main price components of EPC therefore, to the IEA s input factors, one should add contractors margins, project risk premiums and the cost of excessive largeness, with the implication of diseconomy of scale due to delays and cost overruns.
Conversely, the results also suggest that fishermen might be in a diseconomy of scale situation, which can be turned around by offering bigger boats or other productive technologies.
(The main exception was the South, where segregation caused a diseconomy of scale that made the county the default school district and required greater state control to keep blacks out of local governance.) They are the nation's most truly "organic communities." Local consolidation advocates in the last century repeatedly used that term.
There is a tipping point where higher output results in higher production costs: a diseconomy of scale. Taking on huge debt can trigger a diseconomy of scale and lead to economic ruin for small producers.
One possible explanation of this apparent anomaly is that the increasing economies of scope observed in public IHEs between undergraduate education and research and graduate education overwhelm the product-specific diseconomy of scale. Another explanation, not grounded in cost efficiencies, is that state legislatures base appropriations to public universities on undergraduate student enrollment figures, such as FTEs.
The second regression model finds that for every 1% increase in total regional population above the mean for Ontario, total environmental expenditures increase by 1.1%, pointing to the presence of a mild diseconomy of scale. Combined, these results suggest that there is a diseconomy of scale in the provision of environmental services in Ontario.
Evidence substantiated a diseconomy of scale function, as costs increased steadily with agency size.
While the district spends more than the statewide average per pupil, its size presupposes a diseconomy of scale. "Everything is done on a shoestring here," Welle sighs.
A diseconomy of scale became apparent when I analyzed data from the American Hospital Association's 1982 Guide to Hospitals.
An elasticity of 1.12 between environmental expenditures and population size suggests a slight diseconomy of scale in the provision of environmental services.