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You are here: IGCSE Business Production Revision Notes Diseconomies of scale

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Diseconomies of scale

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Diseconomies of Scale

These are the drawbacks of being a big business. In other words, all the factors those lead to an increase in average costs as a business grows.
Diseconomies include the following:

Human relations

It is difficult to organize large number of employees. The business might find itself spending too much on communication. There might be long chains of command and instructions will take a long to reach the desired destination. Moreover there might be distortion in the message. There will be less personal contact between decision makers and staff, which can lead to low level of morale, lack of motivation and ultimately industrial relations problems.

Decisions and co-ordinations

There could be coordination problems. With a larger hierarchy, both the quality of information reaching from the management to the workers and vice versa could lead to poor decision making. There would be considerable paperwork and many meetings.

External diseconomies

Recently, consumers have become more conscious of the activities carried out by big firms. Therefore, big firms have to spend a lot of money on environmental issues and social responsibility act. These ultimately lead to higher average cost per unit.

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